Insurers and brokers worry their code of practice overseers – but for very different reasons

By John Deex

Insurers and brokers in Australia aim to self-regulate through industry-approved codes of practice which spell out their promises to consumers, but the bodies charged with overseeing compliance aren’t happy with the trends they’re seeing.

Two annual reports released in recent months – one covering compliance with the Insurance Brokers Code of Practice and the other with the general insurers’ code – come with serious but very different concerns.

For the insurers’ Code Governance Committee, it’s all about a rapidly rising number of breaches. But for brokers, the problem is a lack of breach reports.

According to the insurer committee’s annual report, insurance providers breached the General Insurance Code of Practice a record 58,104 times in the 12 months to June 30 2022 – up almost 40% on the previous year.

The committee acknowledges it was a difficult period for insurers, with significant claim events including last February’s record-breaking floods across New South Wales and Queensland. That catastrophe alone led to more than 240,000 claims.

But the Australian Financial Complaints Authority’s General Manager Code Compliance Prue Monument says the insurers can’t use recent severe events as an excuse for rising breaches – because the number of breaches has been rising for five years.

“The frequency of the extreme weather events that have occurred over recent times can really no longer be seen by the insurers as one-offs or unforeseen events,” she tells Insurance News.

“It seems to be the new normal. So while things might have caught them off guard initially, we expect to see some shifts in operating models and improved practice.”

Ms Monument believes quick changes could be achieved by insurers in the area of communication, at least. The obligation to consumers to “tell you about the progress of your claim at least every 20 business days” was breached 17,661 times.

Insurers have told Insurance News that when dealing with such vast claims volumes, it can be impossible to keep up, and some have questioned the value of updating every 20 days if there has been no movement on a claim.

But Ms Monument isn’t convinced that rhetoric “entirely stands”.

“The code, and the 20 business day obligation is obviously the industry’s commitment, and promise,” she says. “So I think it’s reasonable for the committee to say, you’ve got to improve here.

“And if you look at the breach data, this was already a problem. Communication and managing consumer expectations and meeting timeframes was an area where we were seeing increased breach reporting before this series of catastrophes.”

Ms Monument believes solutions could be achieved by an increased investment in technology, improving training, reviewing systems and processes, and streamlining and simplifying things wherever possible.

She also believes the industry could work together more. “We would encourage the industry as a whole to talk about how it can use technology for site assessments following catastrophes, but also how the industry might be able to co-ordinate around catastrophes where there is a shortage of particular expertise.

“Where they’re all competing for limited resources such as hydrologists, it makes things much more complex, much more protracted.”

Ms Monument says the industry can “actually work together to also get some efficiencies and better outcomes, obviously within the bounds of other laws and regulations”.

While insurers’ improved breach identification, recording and reporting has been “fantastic”, she says that after such a significant rise last year, and five years of rises, it’s time for breaches to start coming down.

Insurers’ code compliance snapshot 2021-22

“There’s no quick fix or easy answer here. The industry itself sees that. But the committee wants the industry to be innovative, proactive [and] find new and different ways of doing things.”

For insurance brokers, their code compliance committee highlights a completely different problem – an implausibly low number of self-reported breaches.

While self-reported breaches during 2021 increased 7.27% to 3570, the real concern is with 52% of broking firms who subscribe to the code not reporting any breaches at all.

The committee has called on brokers to review internal compliance processes and culture. It says the figures may indicate the prevalence of company cultures that don’t value self-reporting and its power to improve standards.

“While reporting zero breaches of the code may sound impressive, it does not necessarily mean a subscriber is doing well,” according to the committee’s Chairman, legal identity Oscar Shub.

Ms Monument says addressing under-reporting and non-reporting will be a “really strong focus” for the brokers’ code committee this year.

With a “vastly improved” new broker code, she believes the time is right for focused action.

“It’s obviously quite a different industry; there’s a lot of very small players there,” she tells Insurance News.

She says education about the code and brokers’ responsibilities under it needs to improve,  “and the National Insurance Brokers Association (NIBA) is really committed to work with us on this”.

“I’m confident we’ll be able to drive some real improvement over the next year or two.”

Industry groups have responded to the reports positively, emphasising a determination to learn and improve while pointing out the challenging backdrop they’re operating in.

The Insurance Council of Australia (ICA) says insurers will review the general insurance code report “to build its findings into efforts to further improve performance and customer outcomes”.

NIBA Chief Executive Phil Kewin says he accepts brokers “still have a way to go in terms of breach reporting”, but believes the new code will assist.          

Insurers’ code grows $100,000 teeth 

A community benefit payment of up to $100,000 can now be imposed on insurance providers for “egregious” breaches of the General Insurance Code of Practice.

The latest version of the code, approved by the ICA board in November 2019 and implemented in July 2021, includes new sanction powers for the Code Governance Committee, including the community benefit payment.

However, due to extensive consultation on systems and processes, the payment has only recently become available to the committee, and no payments have been imposed as yet.

Ms Monument says while it is now an option, it and other sanctions – such as publishing details of a breach – would only be imposed after careful consideration.

“The committee does have a range of sanctioning powers under its charter and obviously now they also have the community benefit payments.

“But it would have to be really serious and systemic for the committee to sanction a subscriber,” she tells Insurance News.

“Sanctioning would really come where the serious and systemic issue was so egregious that the committee needed to act, or the committee felt the insurer wasn’t taking the necessary action to remediate and ensure that things were not going to continue to happen in the future.”