The Royal Commission focused on the life insurance and general insurance industries, and not on the marine or health insurance industries. General insurance includes home insurance; contents insurance; motor vehicle insurance; travel insurance; and various types of “add-on” insurance, including gap insurance and tyre and rim insurance. The four main types of life insurance that were also considered were life cover, where the benefit is payable on the death of the policyholder; total and permanent disability cover; income protection cover; and trauma cover, where a policyholder is diagnosed with a particular illness. In the year ending 31 March 2018, life insurers in Australia earned over $18b in direct premiums from consumers.
In Commissioner Hayne’s view, some changes are required in order to not only bring the regulation of the industry in line with other financial products but to create a better balance between the rights and obligations of insurers and insureds. The recommendations made therefore cover the types of insurance and the way that the insurance products are sold, including recommendations relating to add-on insurance. Also addressed are pre-contractual disclosures and representations, unfair contract terms and claims handling. It was also recommended that insurance industry codes contain enforceable provisions. External dispute resolution and specific provisions for group life policies were also addressed.
15 recommendations were made with regard to insurance.
- Hawking prohibited: The hawking of insurance products to be prohibited: Recommendation 4.1.
- Funeral expenses policies — removing exclusion: Legislative amendments to be made removing the exclusion of funeral expenses policies from the definition of a “financial product” and clarification of the consumer protection provisions in the ASIC Act so that it applies to such policies: Recommendation 4.2.
- Add-on insurance — deferred sales model: A sales model to be developed for the sale of all add-on insurance products, excluding comprehensive motor vehicle insurance: Recommendation 4.3.
- Cap commissions for car dealers: Imposition of a cap on the commission paid to car dealers relating to add-on insurance products: Recommendation 4.4.
- Replacing the duty of disclosure: Amendment of Pt IV of the Insurance Contracts Act 1984 to replace the existing duty of disclosure for consumer insurance contracts with a duty to take reasonable care not to make misrepresentations to an insurer: Recommendation 4.5.
- Avoiding life insurance contracts due to misrepresentations: Amendment of s 29(3) of the Insurance Contracts Act to permit an insurer to avoid a contract of life insurance only on the basis of non-disclosure or misrepresentation, if it can be shown that it would not have entered into a contract on any terms: Recommendation 4.6.
- Unfair contract term laws to apply to insurance contracts: The unfair contract term provisions in the ASIC Act to be applied to insurance contracts that are regulated by the Insurance Contracts Act, ensuring that the duty of utmost good faith in s 13 of the Insurance Contracts Act operates independently of the ASIC Act provisions: Recommendation 4.7.
- Removal of claims handling exemption: The handling and settlement of insurance claims, and possible claims, to be included in the definition of a “financial service”: Recommendation 4.8.
- Enforceable code provisions: Industry codes to contain enforceable provisions and other mandatory codes established. In addition, steps should be taken by 30 June 2021, to have provisions in the Life Insurance Code of Practice and General Insurance Code of Practice, that govern the terms of the contract designated as “enforceable code provisions”: Recommendation 4.9.
- Sanctions for breaches of codes: Amendment of s 13.11 of the General Insurance Code of Practice, and s 13.10 of the Life Insurance Code of Practice to enable the imposition of sanctions on a subscriber who has breached the relevant code: Recommendation 4.10.
- Co-operation with AFCA: Amendment of s 912A of the Corporations Act to require AFSL holders to take reasonable steps to co-operate with AFCA in the resolving particular disputes: Recommendation 4.11.
- Extension of accountability regime: Extending similar provisions to those on the BEAR- to APRA-regulated insurers: Recommendation 4.12.
- Default MySuper — universal terms review: Consideration by the Treasurer in consultation, of legislating universal key definitions, terms and exclusions for default MySuper group life policies: Recommendation 4.13.
- Additional scrutiny for related party engagements: Amendment by APRA of Prudential Standard SPS 250 to require certain RSE licensees to obtain and provide to APRA independent certification that the arrangements and policies entered into are in the best interests of members and otherwise satisfy legal and regulatory requirements: Recommendation 4.14.
- Status attribution to be fair and reasonable: Amendment by APRA of Prudential Standard SPS 250 to require RSE licensees to be satisfied that the particular status attributed to a member in connection with insurance is fair and reasonable: Recommendation 4.15.
A Practical guide to reviewing contracts for unfair terms, and a roadmap on unfair contract terms are available in CCH’s Australian Competition and Consumer Law Reporter. More information about insurance law is available in CCH’s Australian & New Zealand Law Reporter. The Banking Royal Commission is discussed in CCH’s Australian Legal Compliance: Making it Work.
- Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, final report.
- CCH Parliament’s summary report on the Royal Commission’s final report, 4 February 2019.
- Government response.
This article was first published in CCH’s Australian Commercial Law Tracker on Tuesday 5 February 2019.