The Hayne royal commission has finished examining general insurers, but the industry cannot afford to relax just yet.
The executives will breathe a sigh of relief to be out of the spotlight, but further reports are still pending, and the commission’s findings could yet inflict further pain.
In closing submissions, Allianz and IAG were warned they could be found to have engaged in misconduct, while remarks on Youi and Suncorp were delayed and will be presented in writing due to the complexity of the case studies.
Earlier in the day Insurance Council of Australia (ICA) CEO Rob Whelan came under fire over the lack of sanctions taken against members who breach the code of practice, particularly given failures in the sale of add-on products.
Counsel Assisting Rowena Orr said that since July 2014 the code governance committee (CGC) had determined breaches in 33 cases, subscribers had conceded breaches during an investigation 689 times, and there had been self-reporting of some 31,000 incidents, but no sanctions were applied.
“The sanction power only kicks in if the breaches that have been identified and reported to the CGC are not remedied and resolved or corrected,” Mr Whelan said.
Customers were taken advantage of during the sale of add-on cover through car yards and the industry hadn’t properly overseen intermediaries, he acknowledged, while highlighting obligations would be clearer in the next version of the code.
“And what makes you think that this time the industry will observe those obligations when they haven’t observed them in the previous iterations?” Ms Orr asked.
“It has been a salutary lesson,” Mr Whelan said. “The industry’s under no illusion that they need to undertake a much more rigorous approach to how distributors sell their products.”
The add-on sales issue shows the limitations of self-regulation but the ICA still believes self-regulation in conjunction with the “black letter” law is the best approach, he told the commission. He is against including the code as part of consumer contracts.
On the issue of unfair contract terms, Mr Whelan was asked to justify why insurers should be treated differently from other forms of financial services.
He explained it would be difficult to price premiums if insurers couldn’t be clear about the extent of the risk they were taking on.
In closing submissions, Ms Orr said it is open to the commission to find that Allianz engaged in misconduct in relation to each of the misleading statements that were allowed to remain on its website.
Failing to report that misleading and deceptive conduct to ASIC could also have amounted to misconduct, as could a failure to have an adequate compliance system in place.
Ms Orr highlighted a number of ways that Allianz engaged in behaviour falling below community standards, including by seeking to “manipulate” independent reports.
She says “for many years” Allianz had inadequate processes for monitoring content on its own website, and inadequate processes for monitoring compliance incidents.
Ms Orr says monitoring and supervision “remains an issue” at Allianz. She says Allianz’s culture does not consider risk and compliance a priority, and responds in a defensive way when challenged.
The commission could find that this is one of the reasons for the alleged misconduct.
Counsel Assisting Mark Costello suggested the commission could find Swann Insurance engaged in misconduct by continuing to sell add-on insurance even after it was aware of ASIC’s concerns.
It also gave incentives to authorised representatives (ARs) to sell as many add-on policies as possible with no regard to the suitability of those products, and had no proper oversight of its ARs.
The commission is open to find that one of the reasons for this behaviour is Swann's culture of pursuing profit above the interests of its customers. IAG failed to have proper oversight of its subsidiary Swann, Mr Costello said.
Ms Orr said final submissions on the natural disaster case studies are complex and will be submitted in writing.
A further report containing questions arising will also be published next Friday, and the parties involved can put submissions to this document before October 1.
“That I think is that, is it not Ms Orr?” the Commissioner asked.
Indeed it is. For now, at least.