Vol: 44 Issue: 1 | May 2021
If the Hayne royal commission gave the insurance industry added impetus to update and improve its codes of conduct, COVID-19 applied the handbrake.
The focus had to be on maintaining service levels, helping newly vulnerable customers and managing remote workers.
Indeed, a June 2020 Roy Morgan report found that almost 60 per cent of workers in insurance and finance worked from home during the pandemic.
Behind the scenes, though, insurance associations have been hard at work drafting new codes, conducting reviews and gathering feedback.
As working life returns to near-normal in Australia and New Zealand, insurance professionals can expect to see the final versions roll out, and work can begin on developing the systems and processes required for best practice.
While some of the code timelines may have been extended, it’s important to note that customers are still protected by previous code versions.
‘It is only reviews of these codes that have been delayed,’ says Sally Davis, general manager of the Australian Financial Complaints Authority (AFCA) Code Compliance Monitoring Committee. ‘In the case of all three Australian codes, robust codes already exist and have existed for some years.’
NEW ZEALAND’S FAIR INSURANCE CODE
New Zealand’s Fair Insurance Code was first cab off the rank, with its updated version coming into effect on 1 April 2020.
Tim Grafton, chief executive of the Insurance Council of New Zealand (ICNZ), says: ‘New Zealand’s Fair Insurance Code is an evolutionary document.
'We consulted widely with stakeholders and consumers to both develop it and to update it. Consequently, insurers already had a high degree of familiarity with the document, and we are confident that they are up to speed with the fundamentals.’
Key changes were clarifications on how insurers should act in the customers’ interests and develop and sell products responsibly.
‘We did a major revision of the Code in 2015/16 and introduced timeframes for responding to claims and complaints for the first time,’ says Grafton.
‘Through that period, we learned that we needed to clarify when the clock starts ticking on a claim or complaint, and when a complaint is a complaint — for instance, when a customer expresses dissatisfaction but doesn’t actually say they are making a complaint.
'An insurer should ideally respond then and there for an early resolution of issues, to the customer’s satisfaction. There are pressures in the system to make sure the insurer responds as soon as it can, including issuing deadlock letters.’
Grafton says the ICNZ didn’t encounter any delays related to COVID-19 in implementing the Code because of the way the changes occurred.
‘There were well-signalled enhancements that were widely distributed in 2019 when the Code was approved, so there was several months’ lead-in time pre-COVID-19.
That gave insurers time to update their systems and processes ahead of 1 April. We also followed up with webinars and guidance on areas that needed clarification.’
However, the New Zealand insurance industry still needed to respond to the pandemic and the new challenges facing customers.
‘While the Code didn’t contemplate COVID-19, at the advent of the pandemic we didn’t just say that the Code covers it,’ says Grafton.
‘We set up a working group of members to share best practice and learnings, especially relating to financial vulnerability, because the Financial Markets Authority [FMA] identified this as a focus at that time.
‘In March 2020, we had a remote board meeting and AGM and focused on our COVID-19 response. We agreed on a set of principles members would apply.
'Anticipating general financial hardship among customers, brokers and suppliers, these principles allowed insurers to respond in the most appropriate way.
'This included prompt or seven-day payment; 120-day deferment for broker payments; special hardship funds; and even reimbursements of motor insurance premiums for customers now working from home.
‘Insurers had a range of ways to respond, and we were able to continue the conversation with the FMA and the Reserve Bank of New Zealand (RBNZ) and assure them of the steps we were taking to support the community.’
According to Damian Falkingham, ANZIIF’s general manager, industry engagement, the Fair Insurance Code encourages good conduct and sets the standard for professionalism and best practice for insurers in all dealings with customers.
‘ANZIIF has partnered with the ICNZ to develop an educational professional development activity called Understanding the Fair Insurance Code,’ he says.
‘This educational resource not only provides New Zealand insurance professionals with an in-depth understanding of their responsibilities and obligations under the Code, it also puts them in the customer’s shoes.
'The activity implements real-life workplace scenarios, which encourage professionals to identify situations where a breach of the Code may have occurred.’
AUSTRALIA’S GENERAL INSURANCE CODE OF PRACTICE
Among the Australian insurance codes of conduct, the General Insurance Code of Practice is closest to being fully implemented.
‘Key consumer provisions in parts 9 [Supporting customers experiencing vulnerability] and 10 [Financial hardship] of the 2020 Code came into effect on 1 January 2021, and Code subscribers will have completed their transition to the 2020 Code by 1 July 2021,’ says a spokesperson from the Insurance Council of Australia (ICA).
The implementation of the full Code was impacted by COVID-19, with the final deadline delayed by six months. The ICA says: ‘Like most businesses, insurers are deeply affected by the pandemic. They need to concentrate on providing urgent services to their customers.
‘The industry’s focus is on ensuring its resources are harnessed to help all customers, including those who are experiencing financial hardship, vulnerability and family violence during COVID-19 and the post-natural disaster season of 2019/20.’
This has meant that insurers have had to double up: adapting to the pressures of the pandemic, while developing the updated systems and processes required by the new Code. This includes meeting a range of new standards for investigations, consumers experiencing vulnerability and a streamlined complaints process.
‘The ICA has been engaging closely with members during the transition period,’ says the spokesperson. ‘Insurers are focused on relevant training, systems changes and the identification and resolution of any implementation issues, before the start date of 1 July 2021.
‘The industry is also working on royal commission reforms and the Australian Securities and Investments Commission’s [ASIC] requirements for it to have an internal dispute resolution system in place later this year.’
The family violence policy provision was one element of the new General Insurance Code that was not delayed.
‘Paragraph 95 requiring subscribers to have a family violence policy available on their website came into effect on 1 July 2020,’ says AFCA’s Davis.
‘The General Insurance Code Governance Committee has assessed compliance with this requirement and has published a report of its findings. In summary, there was a high level of compliance with this provision by subscribers to the General Insurance Code.’
Falkingham notes that together with ANZIIF, the ICA launched educational training on the General Insurance Code in 2019. Now he points to a new online course to help with professional development related to the codes of conduct.
‘ANZIIF’s education team recently developed a short online course called Building Integrity, which aims to address issues of conduct and culture in the insurance industry,’ he says.
‘The course includes case studies and customer journey scenarios to explore what the issues are, the consequences that result from these issues and how we as an industry can work towards improving outcomes for our customers.’
INSURANCE BROKERS CODE OF PRACTICE
Dallas Booth, CEO of the National Insurance Brokers Association (NIBA), says his organisation is in the middle of its Code review.
‘It has taken longer than expected with the royal commission in 2018/19 and the development of the General Insurance Code. We always wanted that to go first. We needed to develop a legal framework post-royal commission and take into account all matters,’ he says.
‘In our initial consultations with stakeholders, AFCA’s comments were that it would like to see greater clarity in undertakings and disclosure of remuneration, and we’re taking this feedback on board.’
Booth says the NIBA board did a lot of work in the second half of 2020 and completed a draft Code of Practice, which was given to internal reviewers.
'The reviewers have taken the suggested position forward in a public consultation process. This was scheduled to take approximately three months, to March 2021. The reviewers will then report back to the NIBA board on the responses and feedback from the consultation.
‘Following this, we are looking to finalise the Code in July 2021, and we will consider implementation timeframes after the details of the Code have been settled,’ says Booth. ‘This will also include ASIC approval of the new Code and we’ll continue to liaise with ASIC as we progress.’
Booth says COVID-19 hasn’t had a real impact on the content of the Code, but NIBA will be mirroring the General Insurance Code’s provisions relating to vulnerable customers. ‘No matter whether a customer contacts an insurer directly or a broker, they will have similar protections,’ he says.
‘The Brokers Code will complement the General Insurance Code, working together to deliver to customers.’
LIFE INSURANCE CODE OF PRACTICE
The Financial Services Council (FSC) has made good progress on its update of the Life Insurance Code of Practice.
The FSC released the Life Insurance Code of Practice 2.0, Review of Consultation and Feedback in November 2020, and Nick Kirwan, senior policy manager for life insurance at the FSC, says the council is on track to hand the Code to ASIC at the end of June for approval.
The new Code contains a lot more protections for consumers, ranging from product design to sales practices, to ongoing service levels, to what to do if things go wrong.
Kirwan points to revisions to underwriting practices as an example. ‘Insurers must explain why they have certain exclusions, and they must also let customers know if an exclusion will apply forever, or if customers can come back and have their coverage decision reviewed, say, when they have been cleared of a certain health condition for more than five years.’
The Life Insurance Code also includes improved processes and principles insurers should follow when processing claims.
‘People often say that life insurance is about the three Ds: death, disease and disability,’ says Kirwan.
‘Whenever someone needs to make a claim on a life insurance policy, it’s always going to be a stressful time. The Code recognises this and asks insurers to handle the claims process with empathy and respect.
'There are also additional protections that apply for claims, such as limiting the length of interviews to 90 minutes, and customers can also request breaks.’
The FSC is particularly concerned about ASIC’s dispute resolution requirements and is working hard to clarify what recent legislative changes mean for insurers in real terms.
‘At the moment, if something goes wrong during the claims process, insurers first move to internal dispute resolution, then external dispute resolution, then to court. This process works well and is well embedded,’ Kirwan explains.
‘However, there are some things that customers might not complain about because they don’t know about them, and that could be of significant detriment to the customers.
'For example, if insurers paid a claims manager a bonus for every claim they rejected, the customer would not have line of sight, but would potentially need a regulator to step in.
'Legislation requires insurers to operate in the upmost good faith and to avoid conflicts of interest. The new Code sets out these requirements clearly, saying that remuneration must be consistent with good consumer outcomes.’
Kirwan says once the Code goes back to ASIC in June, the FSC will discuss the enforceable Code provisions with ASIC.
‘The sanction regime in the Code has changed. We need to nominate the enforceable provisions and penalties, and while we haven’t settled on these yet, we are close to agreeing on the principles,’ he says.
‘We are also still discussing the service standards and how to measure and maintain them in the right way.
'For example, a life insurer might set a service standard to answer phone calls within three rings 90 per cent of the time. If a customer calls and it rings eight times, should the insurer be sanctioned? No. Companies can be temporarily short-staffed or a computer system can go down.
‘But should the insurer be sanctioned if they only manage to answer in three rings half of the time? Maybe yes, because then it might be considered hard to get hold of.
‘Sanctions might not apply to an individual situation but should apply at a global level.’
Once the Code has been approved by ASIC, the FSC anticipates a year’s implementation, meaning the Code should be in effect around mid-2022.
‘Because there will be enforceable provisions and civil penalties, life insurers must have an opportunity to get ready,’ says Kirwan. ‘A new code requires them to do things differently: new systems, new processes and staff training.’
To date, the FSC says feedback on the draft Code has been positive.
‘Life insurers put a lot of store in the Code, and they feel good about it,’ says Kirwan. ‘Confidence is such an important part of insurance, because we buy coverage with the knowledge that it will only be tested in the future. We also hope never to have to use it.
‘The Code means consumers can buy life insurance with confidence, knowing that if something goes wrong, their insurance will catch them.’
CODES OF CONDUCT TIMELINE
- 2019 — February — Kenneth Hayne issues final royal commission report.
- 2020 — April — New Zealand’s Fair Insurance Code comes into effect.
- 2020 — July — Australian general insurers publish family violence policy on their websites.
- 2021— January — Parts 9 (vulnerable customers) and 10 (financial hardship) of General Insurance Code come into effect.
- 2021 — June — Life Insurance Code goes to ASIC for approval.
- 2021 — July — General insurance Code comes into full effect.
- 2021— July — Insurance Brokers Code goes to ASIC for approval.
- 2022 — June — Life Insurance Code comes into effect.
- 2022 — July — Insurance Brokers Code comes into effect.
WHAT IF YOU BREACH A CODE OF CONDUCT IN AUSTRALIA?
The Code Compliance and Monitoring Team at the Australian Financial Complaints Authority (AFCA) supports three independent committees charged with monitoring compliance with insurance codes of practice:
- General Insurance Code Governance Committee
- Insurance Brokers Code Compliance Committee
- Life Insurance Code Compliance Committee
‘Each of these committees is the appropriate body to receive reports of breaches, not AFCA,’ says Sally Davis, general manager of the AFCA Code Compliance Monitoring Committee.
‘A significant part of the work undertaken by code committees includes the collection of self-reported code breach data annually from the individual code subscribers and is a fundamental premise of self-regulation. The General Insurance and Life Insurance Codes also place an obligation on subscribers to report significant breaches to their respective committees within 10 days of them being identified.’
Code subscribers are obliged to remedy breaches of the relevant code, including adhering to any timeframes set by the code and the committee that monitors it. They also complete annual returns and committee data requests detailing self-reported breaches.
‘Breaches of the code may also represent breaches of other obligations, and subscribers should consider if these need to also be reported to other oversight or regulatory bodies,’ says Davis.
SPEAKING IN ‘PLAIN ENGLISH’
One of the reasons for the delay in finalising the updated Life Insurance Code of Practice revolves around communication: producing a document that is easy for consumers and insurers to read and understand.
Writing the Code in ‘plain English’ is a requirement of the Australian Securities and Investments Commission (ASIC), explains Nick Kirwan, senior policy manager for life insurance at the Financial Services Council.
‘We have settled on the content of the Code, subject to final discussions. Now, we’ve gone for a formal plain English rewrite,’ he says. ‘We are working with the Plain English Foundation [the FSC handed back the draft in March].’
Plain English should:
- be clear and concise
- use everyday language instead of jargon or legalese
- most often use short sentences (15-20 words)
- use the active tense most of the time
- use ‘you’ and ‘we’, rather than ‘supplier’, ‘customer’, ‘applicant’ etc.
‘The Plain English Foundation also did a mapping exercise and explained to us that it would be easier for readers if we reordered the chapters,’ says Kirwan.
‘When we get the Code back, we will circulate it with stakeholders, consumer groups and ASIC, to ensure policy and intent remain the same.’
LIFTING THE BAR ON ADVICE IN NEW ZEALAND
Anyone providing financial advice to retail clients in New Zealand must now comply with a new Code of Professional Conduct for Financial Advice Services.The Code, which came into force on 15 March 2021, has two parts. The first outlines the ethical behaviour, conduct and client care standards that need to be met. The second details the standards of competence, knowledge and skill advisers need. These standards are considered to be equivalent to the general outcomes of the New Zealand Certificate in Financial Services (Level 5) version 2.Advisers have a two-year transition period that includes a safe harbour while they work towards meeting these standards.
ANZIIF offers several compliance pathways for advisers wanting to achieve this. One is Level 5 equivalent compliance training for New Zealand advisers in general insurance and general insurance broking.
Other pathways include investigating whether experience in general insurance or general insurance broking or having achieved alternative qualifications, such as an ANZIIF Diploma of General Insurance or an ANZIIF Diploma of Insurance Broking, can help advisers towards complying with the new standards.
Regardless of the chosen pathway, all advisers will need to complete ANZIIF’s bridging unit, which covers off the new Code of Conduct standards.
To discuss your options for meeting the new standards, email [email protected]
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