Introduction
The 2020 General Insurance Code of Practice is about self-regulation.
In recent update on the pending changes to the General Insurance Code of Practice, I wrote about how those changes will give the Code real muscle in its efforts to enhance self-regulation in the Australian insurance industry.
The pending amendments will expand the Code’s focus from fixing breaches of the Code to imposing sanctions for those breaches.
This is the second in my occasional updates on the 2020 General Insurance Code of Practice. This update looks at the sanctions which may be imposed upon members for breaching the Code and, just as importantly, how those sanctions can be imposed.
Obligations
So, what are the obligations under the 2020 Code?
The Code applies to those insurers who have adopted it. The Code applies to general insurance with some important exceptions and, to the extent that it applies to a particular insurance policy, its response to retail insurance is different from its response to wholesale insurance[1].
The Code requires those insurers who have adopted the Code and their third-party suppliers to meet certain standards in the way insurers and their third-party suppliers treat their clients, sell products to their clients, handle claims and, in the case of retail insurance, respond to the personal pressures which their clients may be experiencing.
And by agreeing to abide to the Code, insurers agree to meet the expected standards.
The Code Governance Committee
The Code Governance Committee drives compliance with the Code.
The Committee’s broad responsibilities include: -
helping the general insurance industry to understand and comply with the Code;
identifying areas where insurance practices can improve;
liaising with the Insurance Council of Australia on relevant matters; and
reporting to the Insurance Council of Australia and the public.
More significantly the Committee is also responsible for monitoring and enforcing compliance with the Code through various powers including the power to investigate, make decisions about alleged breaches, receive submissions, and refer matters to the Australian Securities and Investments Commission.
Ultimately the Committee has the power to: -
require corrective measures to be implemented within an agreed time-frame;
impose sanctions; and
publish its decisions.
Sanctions
What sort of sanctions can the Committee impose?
The types of sanctions can vary from broad sanctions requiring the insurer to take specific steps to rectify a situation, undertake compliance of its business or advertise a correction. In situations where the breach is a more serious one, the sanction may involve compensation.
The type of sanction or its severity may also depend upon the insurer’s conduct before and after the breach. At the end of the day, the Committee’s discretion is extensive.
The Imposition of Sanctions
Bearing in mind that the sanctions which can be imposed, can be onerous, it is important to pay particular attention to how a sanction can be imposed.
The Code provides that if the Committee proposes to impose a sanction, it must give the insurer the opportunity to provide a response to that proposal before any sanction is imposed.
The Committee’s decision to impose a sanction must be in writing and is binding. Any basis for challenging that decision appears narrow so responding to the Committee is not an occasion for flippancy.
There is no obvious opportunity to present any oral argument so presumably the Committee will use proper processes following the relevant principles of administrative law in deciding what sanction to impose.
As the 2020 Code and its Committee’s new powers are in their infancy, it may take some time for the Committee to settle the process it intends to follow when situations arise which warrant the imposition of a sanction.
Key Point
A fundamental question with which insurers are currently grappling is in what sort of world do they want to live. How can they contribute to making it a better place for themselves and future generations?
Insurers are starting to shift their capital from destructive to socially viable risks and, in the grand scheme of things, that is fantastic. But there is still plenty of room for insurers to operate on a much more micro level.
The six-month old provisions of the 2020 General Insurance Code of Practice admirably address amongst other things the risk of domestic violence and vulnerability. But as much as the Australian insurance industry wants its members to lend a more sympathetic ear to its clients, it also wants its members to adhere to the high standards set.
The 2020 General Insurance Code of Practice makes this point and makes it clearly.
______________________ [1] See Part 2