'Breaking pricing promises for years': code watchdog flags breaches

Report proposes 'self-funding' insurance model for export industries

The industry’s failure to honour pricing discounts has been going on for years, spanning even the operation of the previous 2014 Code of Practice, the General Insurance Code Governance Committee says in its report for the 2021/22 year.

The latest version of the Code came into effect in July last year but aspects giving consumer protections to vulnerable consumers and those experiencing financial hardship came into effect during the 2020/21 financial year.

“In many cases, insurers have been breaking pricing promises for years,” Committee Chair Veronique Ingram said.

“Overcharging premiums is harmful to consumers and insurers should be doing more to prevent this. The onus lies with the insurers because these types of errors are not easily identified by customers.”

She says the rise in significant breaches of Code sections covering the sales process or buying insurance is “concerning”.

The Committee says the “level and duration” of significant breaches directly related to pricing promises surpassed what it had anticipated.

The industry’s pricing practices are under intense scrutiny amid ongoing remediation work ordered by the Australian Securities and Investments Commission (ASIC). Last month ASIC said 11 insurers have reported back to the regulator and customer remediation over failures to deliver promised pricing discounts have reached $760 million.

In other key findings released today, the number of significant breaches as reported by 22 Code subscribers nearly doubled to 116 from 57 in the previous year.

The report says these breaches affected more than 1.7 million consumers and resulted in remediation payments of more than $52 million.

The 116 breach matters spanned 203 individual obligations of the 2014 Code – 41% of non-compliance – and the 2020 Code (59%).

Another area of concern relates to a near 18% rise in significant breaches covering claims handling.

Code subscribers reported significant breaches related to claims at a steady pace throughout 2021/22 and the increase over the period does not appear to have been driven by extreme weather, the report says.

However the Committee is expecting the numbers to worsen in light of the flood catastrophes and other disasters that have unfolded in the last several months, made worse by added strain from supply shortages of key building materials and tradies.

“We expect more significant breaches related to claims handling in 2022/23. The storms and subsequent flooding caused widespread damage in many communities, with thousands of people still affected months later,” the report says.

“The large volume of claims that this triggered put great pressure on the insurance industry.”

The Insurance Council of Australia (ICA) says it notes the Committee has called out several areas that may require attention.

“However, the report recognises the challenging operational conditions insurers have faced during the review, with unprecedented events occurring including the Covid-19 pandemic, numerous natural disasters generating hundreds of thousands of claims, supply chain and labour market shortages,” a spokesman said.

“The ICA also notes many of the significant Code breaches reported relate to Code commitments of timely communication and claims decisions and while this is of concern to the industry it is against the backdrop of a record volume of claims.

“The report has noted there are signs that some of these were exacerbated by recent catastrophes.”

Click here to access the report.