Preliminary Pages
Foreword
Australia is a country of fires, floods, cyclones and other
extreme weather events. Recent natural catastrophes have revealed a number of
gaps in consumer protection when it comes to general insurance. The mass
lodgement of business, home and contents insurance claims in the wake of
multiple natural disasters that have hit Australia in recent years showed up
these consumer protection gaps in stark detail.
Claimants had nowhere to turn and no means of redress when
they were unable to have their insurance claims resolved in a timely manner.
Victims of extreme weather events all over Australia faced unacceptable delays
in the assessment of their claims; misunderstandings about the scope and extent
of their polices; a lack of information or communication from insurers;
discrepancies or inaccuracies in damage assessments or third-party expert
reports; and token efforts at dispute resolution. Those who tried to assert
their rights in the labyrinth of the claims process found themselves on the
wrong side of a power imbalance.
The Committee understands that the events of the past years
presented an unprecedented workload on the insurance industry. However,
policyholders do not agree to forego the benefits of their policy in the event
of a natural catastrophe. In fact, it is precisely at those times that they are
in greatest need of their insurance policy. The insurance industry needs to
plan and resource itself effectively so that it can deliver to its customers in
times of need.
The Committee concluded that consumer protections need to be
increased, particularly in the claims-handling process. The best way to do this
is to remove the legislative exemptions that the insurance industry currently
enjoys, and bridge the gaps in consumer protection. I urge governments and the
insurance industry to implement these recommendations with the utmost speed so
that policyholders can have peace of mind for future, inevitable natural
disasters.
Mr Graham Perrett MP
Chair
Terms of reference
To inquire and report on the insurance industry's
response to the 2010/2011 extreme weather events around Australia, specifically
examining:
n The claims processing
arrangements:
a. Information - whether
consumers were given accurate and useful information by insurers about their
right to make a claim, if they made a claim, the progress of that claim and
their right to external dispute resolution.
b. Timeframes - The time taken to process claims by the insurance industry and
whether these timeframes were reasonable (by event and region).
c. External parties - The engagement of third party experts and external
consultants by the industry, including hydrologists and law firms, and the
impact of these external parties on claims processing.
d. Internal Dispute Resolution (IDR) - Whether industry IDR processes were
effective and undertaken in a timely manner.
e. Code of Practice - The effectiveness of the insurance industry’s Code of
Practice.
n The conduct of
external dispute resolution processes for claims arising from the 2010/2011
extreme weather events, including:
a. The effectiveness of dispute
resolution within the Financial Ombudsman Service.
b. Barriers to participation in external dispute resolution for consumers.
c. The impact of free legal advice on people’s access to external dispute
resolution (including assistance provided by Legal Aid services and community
legal centres).
n Any other matters
impacting on insurance claims processing arising from the 2010/2011 extreme
weather events.
List of recommendations
Recommendation 1
The Committee recommends that the Australian Government amend
the Insurance Contracts Act 1984 (Cth) to make it obligatory that
insurers offer to consumers the option of a general insurance policy that
conforms to Standard Cover, as prescribed in the Insurance Contracts
Regulations 1985 (Cth), from 1 July 2012, so that all insurers carry a
product that provides full replacement in the event of total loss and cover for
damages resulting from flood.
Recommendation 2
The Committee recommends that the Australian Government amend
the Insurance Contracts Act 1984 (Cth) so that from 1 July 2012 any
derogation from Standard Cover is required to be communicated to policyholders
as a departure from ideal standards:
in
clearly understood terms and separately from the policy or the Product
Disclosure Statement;
with
specific reference to the fact that the policy derogates from Standard Cover;
and
with
specific reference to the manner in which the policy derogates from Standard
Cover.
Recommendation 3
The Committee recommends that the Australian Parliament pass
the Insurance Contracts Amendment Bill 2011 and ensure its enactment by
1 July 2012. The Committee further recommends that the standard definition
of ‘flood’ be included in the definition of Standard Cover in the Insurance
Contracts Regulations 1985.
Recommendation 4
The Committee recommends that the Australian Government
introduce legislative changes required to remove the exemption for general
insurers to unfair contract terms laws, and ensure its enactment by the end of
2012.
Recommendation 5
The Committee recommends that the Australian Government work
with the Insurance Council of Australia to make the following amendments to the
General Insurance Code of Practice by 1 July 2012:
remove
the clauses that set aside the Code standards in times of disasters;
require
insurers to refrain from advising policyholders against making a claim under
their insurance policy, and incorporate a ‘right to claim’ so that
policyholders who contact their insurer about their eligibility to make a claim
are offered the opportunity to lodge a claim and have it assessed fully;
ensure
that a full explanation of the claims-handling process, including the right to
escalate decisions to internal dispute and external dispute resolution systems,
is given when policyholders lodge a claim;
ensure
that an acknowledgement of the claims lodgement, contact details of the claims
officer, and expected timeframes for the claims-handling process are provided
to policyholders in writing;
require
that copies of external expert reports used in the determination of a claim to
be provided to claimants within 10 days of request; and
introduce
the following minimum standards for claims handling in times of exceptional
circumstances such as declared disasters:
Þ a
timeframe for informing claimants of the progress of the claim;
Þ a
timeframe for advising claimants if an external expert has been appointed;
Þ assurance
that external experts are fully qualified to undertake assessments;
Þ an
undertaking to provide claimants with information about the qualifications,
employer, and role of external experts that are appointed to assist with their
claim;
Þ a
maximum timeframe of 12 weeks for external experts to provide reports;
Þ a
maximum timeframe for accepting or denying a claim;
Þ a
timeframe for responding to requests for information;
Þ an
undertaking to communicate all decisions about insurance claims to the claimant
in writing with clear and explicit reasons relating to their particular claim;
and
Þ a
timeframe for informing claimants of the progress of their complaint or
dispute.
Recommendation 6
The Committee recommends that the Australian Securities and
Investments Commission amend Regulatory Guideline 139 by 1 July 2012 to require
the Financial Ombudsman Service to report regularly to the Australian
Securities and Investments Commission and also to make public:
the
names of insurance companies that have breached the Code or are involved in
systemic issues, and the types of breach; and
the
annual number of internal dispute resolution and external dispute resolution
cases for each insurance company.
Further, the Committee recommends that, following declared
disaster events, the Financial Ombudsman Service should be required to provide
a report to the Australian Securities and Investments Commission on breaches
and dispute resolutions specific to the disaster area.
Recommendation 7
The Committee recommends that the Australian Government
empower the Australian Securities and Investments Commission to regulate claims
handling and settlement of financial service providers. This can be achieved by
the Treasurer introducing legislation by 1 July 2012 to give effect to the
measures contained in Schedule 1, Part 1 of the lapsed Insurance Contracts
Amendment Bill 2010, so that breaches of the duty of utmost good faith in
relation to claims handling constitute a breach of the Insurance Contracts Act.
This would enable the Australian Securities and Investments
Commission to:
monitor
and regulate claims handling and settlement processes;
impose
sanctions on insurance companies, under Australian Financial Services Licence
remedies, on behalf of consumers; and
negate
the current exemption of claims handling and settlement from the definition of
financial services for the purpose of the Corporations Act 2001.
Recommendation 8
The Committee recommends that the Australian Government
introduce legislation by 1 March 2013 to make adherence to the General
Insurance Code of Practice a compulsory requirement for all general insurers.
Recommendation 9
The Committee recommends that the Australian Securities and
Investments Commission amend Regulatory Guideline 165 to:
require
general insurers to provide clear and comprehensive information about both
Internal Dispute Resolution and External Dispute Resolution to clients at time
of claim lodgement;
require
general insurers to provide information to clients at the time of claim
lodgement on the right to seek from Financial Ombudsman Service an independent
external expert report (such as a hydrology report);
prohibit
general insurers from commenting to policyholders on the merits of a dispute;
prescribe
an Internal Dispute Resolution model which avoids multi-tiered components; and
automatically
escalate a claim that has not been settled within four months to an internal
dispute should the General Insurance Code of Practice amendment to this end not
be implemented.
Recommendation 10
The Committee recommends that the Australian Government and
relevant State and territory governments jointly allocate additional and
continuing funding in the 2012–13 budget to the Insurance Law Service for the
mobilisation of a temporary physical presence in areas of need following
natural disasters.
The service should be available to all persons in an affected
disaster area and not subject to means-testing.
Recommendation 11
The Committee recommends that the Australian Government
allocate additional and continuing funding in the 2012–2013 budget to the
Insurance Law Service to establish a consumer advisory position at the Financial
Services Ombudsman. The position should be co-funded by the Insurance Law
Service and the insurance industry.
Recommendation 12
The Committee recommends that the Australian Government
investigate ways to reduce the cost of calling 1300 numbers from mobile
telephones in areas of natural disasters.
Recommendation 13
The Committee recommends that the Minister for Financial
Services and Superannuation immediately establish a joint industry-Government
action group to address evidence of the rising costs and market failure of
insurance premiums across Australia.