Industry codes undergo a makeover

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry cast a dark cloud over much of the Australian insurance sector when the final report was released in February 2019. Widely viewed as an indictment of unethical practices, it set a mandate for cultural transformation across the entire financial services industry.

Commissioner Kenneth Hayne’s recommendations for general and life insurance included a potential ban on commissions (pending an Australian Securities and Investments Commission [ASIC] review in 2021), the removal of claims handling exemptions to ensure they are subject to ASIC oversight, changes to the duty of disclosure and legal enforcement of some provisions of industry codes.

While such regulatory changes look set to lift standards across the sector, the insurance industry is also taking steps to increase professionalism from within.

REVISING THE GI CODE OF PRACTICE

Changes to the General Insurance Code of Practice were in motion prior to the release of the royal commission’s final report after the board of the Insurance Council of Australia (ICA) initiated a review in February 2017.

The review’s final report, released on 26 June 2018, included 30 recommendations that reflected key priority areas. These included strengthening the governance of product design and distribution, amending standards on claims investigations and assisting consumers experiencing vulnerability, such as family violence, financial hardship, physical or mental health conditions and exposure to catastrophic events.

Addressing the requirements of vulnerable people marks a new and significant step in strengthening the Code.

New principles provide guidance for addressing the rights and the needs of people with a mental health condition. These include principles for treating mental health conditions in the same way as any other medical condition and having available prognostic data and documented rates of prevalence, morbidity and mortality through each stage of the life cycle for relevant insurance products.

The Code will also feature enhanced protections for consumers experiencing financial hardship. This includes the requirement for insurers to have internal policies and to train relevant employees to help with the identification of consumers who may be experiencing financial hardship.

Similarly, guidance on family violence will provide additional assistance to affected consumers, while also focusing on training and assistance to staff in the industry.

‘Substantial resources are being allocated to ensure the entire general insurance industry has in place policies and training to ensure all employees are able to recognise and understand when they are dealing with a vulnerable consumer, how best to deal with that consumer, and to ensure that such consumers are always engaged with sensitivity, dignity, respect and compassion,’ says Campbell Fuller, head of communications and media relations at ICA.

‘This has been plainly written into the Code as not only an expectation but a standard to which signatories must adhere.’

PREPARING FOR CHANGE

Transition to the new GI Code began on 1 January 2020 and it will be effective from 1 January 2021.

Suncorp is one of the insurers that began preparing ahead of the Code’s release. In 2018, it introduced the Office of the Customer Advocate across its insurance business. The role includes identifying ways to better protect customers’ interests and reviewing complex and sensitive complaints to ensure a faster resolution for customers.

Annabelle Butler, executive manager of accessibility at Suncorp Group, says the insurer has also established a dedicated claims team to work with customers experiencing vulnerability.

‘Our employees have received training on how to identify and sensitively respond to the needs of vulnerable customers, including those facing financial hardship,’ she says. ‘For customers and third parties who need a holistic support program, we provide referrals to Uniting Kildonan’s CareRing, in addition to services provided by Suncorp.’

Butler says Suncorp is also in the process of updating its customer management and policy systems to allow for sensitive information on vulnerabilities to be stored, with the consent of customers.

‘For example, for survivors of domestic violence, alternative address details will be stored in our policy systems, which will be hidden from frontline staff to avoid unintended disclosure of details to perpetrators,’ she says.

Butler believes the introduction of the new Code of Practice is a massive leap forward for the insurance industry.  ‘All insurers have been experiencing increased numbers of customers and third parties who identify as vulnerable, and it’s great we now have a comprehensive framework to help us ensure we are providing appropriate support,’ she says.

BROKERS CODE UNDER REVIEW

Australia’s National Insurance Brokers Association (NIBA) is also undertaking a review of the Insurance Brokers Code of Practice, which has been in place since 2014.

NIBA CEO Dallas Booth notes that while a Code review is overdue, the royal commission’s findings created greater impetus to examine its effectiveness.

‘I don’t think there’s anything fundamentally wrong with our Code, but, by the same token, external stakeholders have been expressing views on a number of areas,’ he says.

Booth says these include greater transparency on remuneration, better handling of conflicts of interest and clearer definition of dispute resolution processes for the Code. ‘Ultimately, one of the important ones is going to be whether any provisions of the Code should become legally enforceable,’ says Booth. ‘That’s an important topic that came out of the royal commission, and it’s certainly on the table for all the industry codes.’

He says the review process was paused in the lead-up to release of the new GI Code. However, it will continue throughout the first six months of 2020 in consultation with industry leaders, NIBA members and NIBA’s board of directors. ‘We will be undertaking a broad public consultation, which we have to do to get the Code approved by ASIC.’

LIFE CHANGES

A new Life Insurance Code of Practice has also been in the planning, but its launch date of 1 July 2019 was pushed back indefinitely by the Financial Services Council (FSC) after stakeholders complained it was not written in plain English and ASIC warned the process was being rushed.

The updated Code, which would have applied to FSC members (but without legal or regulatory status), would have upgraded existing customer protections in areas such as funeral insurance, mental health claims and pressure selling, particularly to vulnerable customers.

Despite the FSC setback, professionalism in life insurance remains in focus, with ANZIIF and the Life Insurance Professional Standards Working Group (LIPSWG) recently signing a memorandum of understanding to work together to lift standards across the industry.

LIPSWG consists of AIA Australia, AMP Life, BT Life Insurance, ClearView, MetLife, MLC Life Insurance, TAL Life Limited and Zurich.

Designed in consultation with the retail life industry, reinsurers, the Australasian Life Underwriting and Claims Association, regulatory authorities and associations, the memorandum seeks to establish a professional standards framework, undertake a demographic survey and develop an approach to assessing current knowledge defined within the agreed framework.

THE HAYNE REPORT RIPPLE EFFECT

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry triggered a review by the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ) into the conduct and culture of New Zealand retail banks. This was followed by a joint Conduct and Culture Review of life insurers in New Zealand.

Lloyd Kavanagh, partner at law firm MinterEllisonRuddWatts in Auckland, says the key objective of the Conduct and Culture Review was to understand whether the industry failings in Australia also existed in New Zealand.

‘The regulators’ report on the review found extensive weaknesses in life insurers’ systems and controls, weak governance and management of conduct risks, and a lack of focus on good customer outcomes,’ says Kavanagh, adding that the issues were deemed to be on a much smaller scale to those in Australia.

As part of its response to the report, the New Zealand Government introduced the Financial Markets (Conduct of Institutions) Amendment Bill to Parliament in December 2019. It will require banks, insurers and non-bank deposit-takers to be licensed, to comply with a fair conduct principle in the treatment of their consumers, and to establish fair conduct programmes. The licensing regime will be monitored and enforced by the FMA.

‘It is important that all insurers, both life and general, embrace the concerns that the FMA and RBNZ raised,’ says Kavanagh.

NEW CODES FOR HONG KONG

Professional standards are also in the spotlight across the region. Hong Kong’s Insurance Authority (IA), for example, has published the new Code of Conduct for Licensed Insurance Agents and the Code of Conduct for Licensed Insurance Brokers, which came into effect in September 2019.

The IA has taken over the regulation of insurance intermediaries from three self-regulatory organisations — the Hong Kong Confederation of Insurance Brokers, the Professional Insurance Brokers Association and the Insurance Agents Registration Board. All insurance intermediaries are now required to be licensed by the IA.

Joyce Chan, partner at law firm Clyde & Co in Hong Kong, which provides advice on regulatory compliance issues, says insurance intermediaries are now subject to statutory licensing and conduct requirements.

‘While the new codes do not have the force of law, the Insurance Authority will take them into account in considering whether the licensed intermediary is fit and proper or has breached any statutory conduct requirements and any other matters under the insurance ordinance to which the codes may be relevant,’ she explains.

‘A shift away from self-regulation and into the single regulatory scope of the IA will push intermediaries into following a consistent set of standards with increased motivation to ensure compliance.'

‘That said, the codes adopt a principle-based approach, which gives insurance intermediaries the flexibility to formulate procedures suitable to their needs.’

LIFTING THE STANDARDS

Chan recommends insurers establish stringent controls and procedures to ensure compliance with new codes.

‘For example, licensed insurance intermediaries should have in place proper controls and procedures to handle and resolve complaints and to ensure that records in relation to the regulated activities they carry out are properly kept,’ she says.

With the new GI Code of Practice now in place in Australia, NIBA will be moving ahead with its own review with the aim of ensuring high professional standards.

‘We wanted the ICA to go first, because it’s really critical that it takes the lead in commitments to clients and consumers for their insurance,’ says Booth. ‘We want to finish up with a product that is welcomed by the community broadly and strongly supported by insurance brokers across Australia.’