Insurers would be forced to make sections of their industry codes enforceable and overseen by the corporate regulator under recommendations that will also curb some of the excesses in its sales culture exposed at the royal commission hearings.
A full chapter of recommendations includes taking steps to improve the accountability of the industry by including steps already being applied to the banks and giving industry codes some of the force of the law.
Kenneth Hayne recommended extending the Banking Executive Accountability Regime to insurers and giving the Australian Securities & Investments Commission better oversight of some industry practices.
Self-regulation through an industry code suffered limitations and difficulties, including that standards set may not be adequate and not all industry participants subscribed to them.
Monitoring and enforcement of codes may be inadequate and the consequences for breach of the code may not be stiff enough to act as a deterrent.
The government said it supported industry bodies and ASIC in acting on this commission.
Mr Hayne also proposed extending no hawking provisions to insurance products — as well as to superannuation — after evidence that companies were cold-calling poor and disadvantaged customers to sell junk products.
An exemption that left funeral expense insurance outside the legislated definition of a financial product should be removed and any ambiguity about it being covered by the consumer protection provisions of the ASIC act should be removed. Add-on insurance such as cover sold through car yards should also move to a deferred sales model to protect it from high-pressure tactics, and there should be a cap on commissions that can be paid to vehicle dealers for such policies.
Mr Hayne said funeral insurance for the very young, accidental death and accidental injury insurance, and add-on insurance sold in car yards were products that had to be “sold”, often very aggressively, using commissions and yielding low claims and high profits.
“Many of the problems raised in connection with the sale of low-value products will be met by prohibiting the unsolicited sale of financial products.”
He also called for exemptions on insurance claims being considered a financial service should be removed after tales of claims of hardship involving CommInsure, TAL, Youi and AAI.
The claims handling exemption limited ASIC’s ability to intervene and should not be opposed because of concerns about costs to providers.
By Andrew White (Andrew is an Associate Editor of The Australian writing news, features and commentary across business. He has been a correspondent, columnist and business editor at both The Australian and the Australian Financial Review, and won the Walkley award for Business Journalism in 2008 for the series Inside Job: Who killed Opes Prime.)
The Australian Business Review
5 February 2019