Written by Scarlett Eadie
The Insurance Council of Australia (ICA) has released its draft General Insurance Code of Practice (Code), representing the most significant structural reform to the Code since it was first introduced in 1994.
If introduced, key Code obligations will move beyond voluntary industry commitments and become contractual obligations enforceable by customers.
This represents a significant change in how insurers will need to approach compliance, claims handling and governance. Moreover, it changes the conversation for insurers as this isn’t simply another rewrite of the Code or a refresh of industry guidance − it represents a fundamental shift in how the Code is intended to operate.
The ICA Code refers to the General Insurance Code of Practice which was established by the ICA and sets minimum service and ethical standards for general insurance companies operating in Australia. The Code is critical to insurers as it aims to build consumer trust, defines operational benchmarks, provides proactive self-regulation and manages legal and regulatory risk for insurers.
Why the Change?
The draft Code seeks to implement recommendations arising from the independent review of the 2020 Code, together with broader proposed reforms following the Financial Services Royal Commission, major natural disasters and increased regulatory expectations.
According to the ICA, the objectives are to:
- Improve consumer outcomes;
- Clarify insurer obligations;
- Strengthen accountability; and
- Support ASIC approval of the Code.
Several changes stand out, but the key proposed changes are examined below:
1. Contractual Enforceability
Perhaps the most significant reform is that core Code obligations would become contractual promises owed to customers. Rather than being a voluntary industry standard monitored primarily through the Code Governance Committee, key obligations could become legally enforceable. That’s a significant shift in legal exposure and one that will inevitably influence claims handling, governance and compliance.
2. Claims Decisions
For certain home building, home contents and motor claims, a claim may be deemed accepted if an insurer has not made a coverage decision within 12 months, unless specified exceptions apply. This creates a significant incentive to actively manage long-running claims. For many insurers, this may be the reform that requires the greatest operational change.
3. Customers Experiencing Vulnerability
The draft expands on obligations relating to customers experiencing vulnerability through a strengthened Extra Care framework. Insurers will be expected to better identify vulnerable customers and provide more consistent support, including enhanced protections for customers affected by family violence.
4. Cash Settlements
The draft introduces stronger requirements around explaining cash settlement offers, with a greater focus on transparency and ensuring customers can make informed decisions.
5. Expert Reports
Insurers would be required to comply with an ICA Expert Report Best Practice Standard, strengthening expectations around independence, quality and transparency for expert evidence relied upon in claims decisions.
6. Service Suppliers
The draft also increases insurer accountability for the conduct of builders, repairers, assessors, investigators and other outsourced service providers acting on an insurer’s behalf.
7. Plain English Drafting
Finally, the entire Code has been redrafted using clearer language and reorganised obligations, making it easier for both consumers and industry participants to understand.
What Does this Mean for Insurers?
Although the final Code is still some way off, insurers don’t need to wait before considering how prepared they are.
Some practical questions include:
- Do our policy wordings align with the proposed contractual obligations?
- Do we have adequate oversight of ageing claims?
- Are our outsourced providers being monitored to the standard these reforms envisage?
- Are our claims teams equipped to manage the enhanced obligations relating to vulnerable customers?
- Are our governance and reporting frameworks ready if these obligations become legally enforceable?
These are questions that are likely to become increasingly important as the reforms progress.
Claims handling will be the biggest operational challenge.
From an operational perspective, the proposed deemed acceptance provisions are likely to have the greatest impact.
The current Code sets claims handling timeframes, and delays may amount to a breach of the Code. However, delay alone does not generally determine liability.
The draft takes a different approach. For certain home and motor claims, failure to make a coverage decision within 12 months may result in the claim being deemed accepted unless an exception applies.
This means insurers should consider implementing:
- Stronger oversight of ageing claims;
- Escalation processes before the 12-month deadline;
- Robust exception registers; and
- Executive reporting on long-running claims.
The draft also introduces a requirement for a primary contact in home building claims, complex claims and claims involving customers requiring extra care. While communication obligations already exist under the current Code, a designated claims owner represents a significant operational change.
Looking Ahead
The public consultation period for the draft Code has now closed, with the ICA undertaking further engagement with key stakeholders and vulnerable communities before then submitting the redrafted Code to ASIC.
Insurers should now start assessing the operational changes these reforms are likely to require. Insurers that begin reviewing their governance, compliance, claims processes and supplier arrangements now will be better positioned for what is expected to be a significant transitionary period once ASIC approval is obtained.
At Ligeti Partners, we work closely with many general insurers who are signatories to the Code. If you would like to discuss how the proposed Code reforms may affect your organisation, please call one of the Ligeti Partners team members on 03 9947 4500.
