Recently we were asked to submit our thoughts and ideas on the recent findings and intended next steps from the Royal Commission into Financial Services. This is an important time in our industry, and as such we felt it important to share the ideas put forth in response to this request. The below is an excerpt from the document submitted, written and prepared by Proclaim’s Managing Director, Jon Broome.
The objective arising from the Royal Commission to remove the exemption for claims handling from regulation is, we think, a good idea. Many countries around the world have licensing regimes for claims managers. I don’t envy the drafters of this legislation, however.
Insurance claims covers a wide range of classes of business, ranging from transactional in nature to highly complex. At the complex end, an Insured may have advisors and lawyers. What the industry needs is simplicity and clarity if claims management is to be formally regulated, but the complication impeding this process will be the range and types of claims in insurance. Life and general are separate industries in of themselves, and as such will require entirely separate processes.
We think the key to making the legislation work will be to keep it relatively simple. Our understanding is that the mischief intended to be regulated exists at the extreme end of the scale, where patent bad faith or dishonesty is involved, such as would be worthy of ASIC intervention. It is our opinion that the more common complaints around delays and differences in opinions on coverage issues should remain self-regulated according to Insurance Codes, albeit with stronger sanctions for failures.
The key considerations in drafting the legislation need to be
- What is a claim for the purposes of the regulation
- Once the definition of claim has been determined, which aspects of claims handling and claims handling ‘advice’ should be subject to regulation?
In considering these two things, the drafters of new regulations need to understand not only the range and types of claims that may be subject to new regulation, but also how the regulation will fit with the changing face of the insurance industry generally.
Some of the key issues we discuss in this paper are:
Most complaints for general insurance claims relate to delays. Given we expect the behaviour for which the regulations intended are more regarding bad faith – misrepresentation, avoiding without evidence, imposition of unlawful requirements etc. – we believe that complaints around delays and everyday coverage issues would be better managed under current Insurance Codes.
While we believe all general and life insurance claims should be the subject of the regulations, we also believe the requirements relating to advice should only extend to policyholders and their representatives (generally insurance brokers). It should not extend to third party claimants against policyholders.
The regulations should comprehend that companies like Proclaim are managing a large volume of claims, and that they have an agency style relationship with insurers who are often offshore. If companies like us have limited authority to make decisions, is it fair we should be held responsible for decisions made outside our authority? If these decisions are being made by insurers who are offshore, will they be required to be licensed? How do you keep a level playing field?
We think the key definitions that need to be considered closely are
- what is a claim
- and what constitutes claim handling?
If the aim is to prevent the worst type of conduct – misrepresentations, denying claims without investigation or evidence, imposition of unfair conditions, delay to cause harm – it should be limited to that. If it is widened to more common low level complaints like delays in responses and investigation where there is no bad faith, the regulations will stretch too far and cause too much complication. Better to keep it to dishonest, reckless or negligent advice to a policyholder, and take the Insurance Council and the industry at their word to make the Codes and the policing of these more effective.
If the definition of ‘claims’ is as wide as we anticipate – to include all life and general insurance claims – we think the definition of ‘advice’ in ‘claims handling’ should be more limited.
It should be limited to the type of conduct that does merit regulator intervention – cases involving dishonesty, bad faith, collusion or unfair use of market power, particularly in retail cases where the balance is skewed.
We think most of the day to day complaints around delays and service providers should remain the domain of the various Insurance Codes of Conduct – after all, consumers do have a choice, so there remains a service imperative. If complaints are effectively about service, though, that should be within the ability of the industry to sort.
Written by Jon Broome
If you would like to read the full document submitted to the Royal Commission, please let us know. We will be more than happy to provide a copy to all interested parties.