It’s been a busy few years for those involved in codes and compliance in the insurance industry. First, the Insurance Council of New Zealand introduced its revised Fair Insurance Code in 2020, and then the Insurance Council of Australia brought in the updated General Insurance Code of Practice in 2021.
Now, the Financial Services Council (FSC) and the National Insurance Brokers Association (NIBA) are looking to complete the set, with revised codes of practice for life insurers and brokers.
Life Insurance Code of Practice
Nick Kirwan, policy director – life insurance, at the FSC, says the latest iteration of the Life Insurance Code was delayed a little in 2021. ‘We had further consultation on the Code and quite a lot of feedback. That’s good, because that’s actually a worthwhile process,’ he says.
As a result, the implementation date of 1 July 2022 has been pushed back to early 2023 — and there may still be more wording revisions when the FSC negotiates the enforceable provisions in the Code with the Australian Securities and Investments Commission (ASIC).
In late October 2021, ASIC told the FSC that it was not going to be producing its regulatory guide on having ASIC approval and enforceable code provisions until at least the next financial year.
‘That means we’re not going to see the final version of the guide probably until at least the end of next year,’ says Kirwan, ‘and that means we won’t be in a position to have our negotiations with ASIC about which provisions will be enforceable and what the process is for ASIC approval.’ Despite the delays, at time of writing the FSC intended to have the new draft Code with the life insurance board in early 2022. The Code will then have a ‘soft launch’ with insurers, with the understanding that updated enforceable provisions may follow when ASIC’s regulatory guide becomes available.
Enforceable provisions in the Life Insurance Code of Practice
Kirwan thinks the whole sanction regime for life insurers is going to be a lot stronger. The FSC needs to ensure everybody can comply with the new Code, so there can’t be any ambiguities if a provision is going to be enforceable.
He anticipates that the timeframes around claims will be one of the ‘handful’ of enforceable provisions. And as far as the process goes, he says the FSC will consult with its members and work out which provisions should be enforceable.
‘Effectively, that gives the FSC the force of law with potential civil penalties. Each one needs to be a provision that goes beyond the law and it needs to be contractual in nature. Then we propose those provisions to ASIC,’ he explains.
As an example, Kirwan points to the cooling-off period provision as a likely enforceable provision. By law, life insurers must give customers a 14-day cooling-off period, during which they can change their mind about their insurance purchase.
The draft Code has a cooling-off period of 30 days.
‘Clearly, the provision goes beyond the law. It’s contractual in nature. It’s very clear,’ he says. ‘None of our members have any problems with that, and they don’t envisage breaching it. If the customer says: “look, I’m changing my mind”, the insurer will simply give the premium back.’
'Reasonable’ timeframes a key question
As well as working with its members, the FSC has consulted extensively with key external stakeholders and consumer groups to identify potential issues in the Code’s provisions. Suspecting that some response and claims timeframes may become enforceable provisions down the track, the FSC is working hard to clarify what counts as a ‘reasonable’ timeframe.
‘Insurers aim to do things within a certain timeframe, but sometimes circumstances are beyond your control. For instance, if you’ve got a death claim but there’s no death certificate, that’s tricky,’ says Kirwan.
‘People’s views of what’s reasonable may differ. The insurer may think it was reasonable to expect a doctor to write back in 20 business days, but the doctor took a month. If the insurer says that was circumstances beyond their control, the regulator might say, “We don’t think so. You should be planning for that.”’
A case in point was the delay with getting information from some doctors during the 2021 pandemic. ‘Members tell me that there’s quite a substantial number of doctors who are not very good at typing,’ says Kirwan. ‘They use their clinic staff to take notes for them. So, if you ask them to write a letter, that’s much harder in lockdown when they don’t have somebody in the office they can dictate a letter to.’
Incremental change for life insurers
Kirwan stresses that the Life Insurance Code of Practice is not a huge departure for life insurance professionals. It simply builds on already-strong processes and practices in the life insurance industry.
‘Our members would say they have been handling claims honestly, efficiently and fairly for hundreds of years. This is not new,’ he says. ‘Claims are always individual, and no two sets of circumstances are ever the same. I think all life insurers have had to build claims processes that can accommodate flexibility for the customers.’
Insurance Brokers Code of Practice
Phil Kewin, the new CEO of NIBA, says the organisation also used 2021 for more consultation with brokers and industry leaders.
NIBA released a significant redraft of the Code in October 2021 and launched the finalised Code of Practice on 1 March 2022. It will take effect on 1 November 2022, giving brokers eight months to implement the new obligations.
The new Code explains how brokers should treat vulnerable clients, as well as RG 271 requirements around complaints handling. It also updates provisions related to the channels brokers use to communicate with their clients — especially in light of how COVID-19 impacted postal and face-to-face communications.
‘We’ve made sure the wording is technology neutral, so brokers can conform to the client communication requirements in the Code, no matter where they’re working from. In other words, you don’t necessarily have to have written letters anymore,’ says Kewin.
Addressing feedback in the Insurance Brokers Code
Kewin says the Code of Practice is monitored by the Insurance Brokers Code Compliance Committee (IBCCC). The IBCCC released its annual report in August 2021, which gave NIBA valuable feedback on how brokers are performing when it comes to self-reporting breaches. To comply with the new provisions, brokers are obliged to report other brokers if they breach the Code.
‘There are some good examples of breach reporting and there could probably be some more breach reporting,’ says Kewin, ‘but the good thing was no underlying fundamental, systemic issues were uncovered. It’s just minor issues around procedures, policies and staff training, to ensure consistency.’
Among the Code feedback NIBA wanted to address was recommendations from a number of respondents around undertakings and disclosure of remuneration. As part of NIBA’s response, the new Code bans preferential remuneration. Says Kewin: ‘Brokers are remunerated by fees, commissions or a combination of both. They provide a valuable service and that’s how they get paid. ‘We took on board the feedback around commission disclosure and we believe we’ve addressed those concerns in the final Code. I believe we have achieved what is necessary to raise professional standards. But mostly, it’s about meeting community expectations, which are continually evolving.’
Getting to the nitty-gritty of Code compliance
In terms of implementing the new Code, NIBA’s extensive consultation process provided members with a good sense of what is now required, and how the new Code improves upon the old one. NIBA will be providing brokers with support material to help them understand and comply with the new Code provisions .‘The feedback process identified stress points in terms of the reality of being able to adhere to the Code,’ says Kewin. ‘If there was anything that was impossible to achieve, or impossible to achieve in a reasonable timeframe, that’s been addressed.’
However, he anticipates further feedback when ‘the rubber hits the road’ and brokers have to make concrete changes to meet the Code provisions.
‘Now that we have finalised the Code, it’s about communicating what it is and what it means for brokers. We’ll be working with brokers and the major broking groups, to educate and inform them, help them introduce new practices, and see how their policies and procedures can be improved.’
Ahead of the game
While the Hayne royal commission didn’t uncover any significant cases of misconduct among brokers, Kewin stresses that the industry cannot become complacent.
‘That’s why we have updated our Code,’ he says. ‘It does go above and beyond what is required by the law, so we can move forward, acknowledge change and stay ahead in terms of our professional standards.’
At the same time, he emphasises that the Code of Practice belongs to brokers and their clients, not regulators.
‘This is not the NIBA Code. It’s not the ASIC Code. It’s not the AFCA Code. This is the brokers’ Code,’ says Kewin. ‘It has been updated to meet and exceed the expectations of our members and their clients, to ensure that brokers are not only continuing to do the great work that they’re doing, but that there’s a code in place to give consumers the security that there are guidelines by which brokers operate.
‘It’s all about making people feel comfortable dealing with their broker and ensuring that they’ve got the appropriate insurance and risk management in place.’
How are insurers measuring up against the General Insurance Code of Practice?
The Australian General Insurance Code of Practice report card 2019-20 came out in March 2021. Overall, breaches increased by 5 per cent. Three of the five main breach types came down to timeliness — which the General Insurance Code Governance Committee suggested could be partly the result of operational challenges insurers experienced because of the COVID-19 pandemic.
Key issue: responding within prescribed timeframes
Complaints and disputes
Key issue: responding within prescribed timeframes
Key issue: late renewal notices
Access to information
Key issue: complying with privacy requirements
Key issue: failing to provide consumers with financial hardship assistance information
New Zealand complaints update
The New Zealand Fair Insurance Code has been in force longer than any of the updated Australian codes. According to the Insurance and Financial Services Ombudsman’s 2021 report, while there were fewer complaints overall in 2021 compared with 2020, more of the complaints were accepted by the Ombudsman.
- 334 complaints accepted
- 323 complaints closed
- 257 not upheld
- 42 settled
- 16 upheld
- 7 partly upheld
- 1 withdrawn
Top 5 complaint enquiries
- Scope of cover
- Customer service
- Uninsured third party
- Policy exclusion