Insurance Brokers Code Compliance Committee releases Annual Review of 2019-20.
A year that began with bushfires and floods before being overwhelmed by the global pandemic has set unprecedented challenges for Australian insurance brokers. These will only intensify as the new “normal” unfolds, especially given many broking firms are small businesses themselves.
“Who, in their wildest imagination, could have created a ‘risk model’ equivalent to this reality?” noted Michael Gill, the Chair of the Committee which oversees the Insurance Brokers Code of Practice (the Code).
The Committee released its 2019-20 Annual Review. A copy can be downloaded here.
Mr Gill’s report highlighted three key issues this year:
- Challenging times for the industry and society
- Disappointment with the Code Review
- More focus on Culture and Behaviour
With a raft of new laws and regulations stemming from the Financial Services Royal Commission, another bushfire season looming and economic uncertainty, Mr Gill said that the Code has never been more relevant in guiding decision-making. “Australia needs an insurance broking industry in which it can have confidence, which is able to reinstate and indemnify, which acts fairly … and which is strong in every sense.”
As society and the insurance industry evolve, the Code should too. The Committee’s work with all Code stakeholders includes extensive consultation with consumer advocates and regulators.
The Committee was concerned by the lack of transparency and long delays in the review of the Code by the National Insurance Brokers Association (NIBA), commenced in January 2017. Mr Gill said the Committee had noticed a disturbing erosion of consumer confidence in NIBA and in the industry as a whole and that an evolving Code subject to regular review is critical to community faith in the industry. He urged NIBA “to make the completion of the review a priority, and to commit publicly to a schedule that includes adequate time for all stakeholders to comment on any new draft version of the Code”.
Focus on culture and behaviour
Recognising that issues of fairness frequently stem from underlying culture rather than from laws or regulations, the Committee expanded its focus this year to include the in-depth examination of culture and behaviour. This significant shift means that as well as the robust monitoring of legal compliance, the Committee’s future activities will be directed at understanding the role of culture, how Code subscribers behave and which behaviours cause the most consumer concern, how we can get more fairness, and how a “living” Code should respond to these issues.
To this end, the 2019-20 Annual Compliance Statement (ACS) included changes that helped the Committee understand institutional behaviour and to canvas information about how firms manage vulnerable clients.
The Annual Review reflects both the Committee’s work during the year and the analysis of data collected from subscribers in the ACS. While the influx of 181 Steadfast brokers in December 2019 swelled the ranks of Code subscribers by 59%, ACS data for 2019-20 was sought only from the previous 286 subscribers.
The ACS data revealed that a total of 10,255 clients had been impacted by Code breaches, with an overall financial impact of just over $1.2 million.
The Committee remains concerned that the data hints at underlying systemic and cultural problems. Over-reporting and nil-reporting of Code breaches suggest a failure in reporting frameworks. The two main causes of breaches were identified in the ACS as ‘manual error’ and ‘failure to follow processes and procedures’, but only 1% to insufficient training. Missing the inherent contradiction in this raises questions about the effectiveness of Code competency and training frameworks.
The Committee was pleased to note a 10% increase in the number of self-reported Code breaches but concerned that almost half the subscribers continued to report nil breaches, including three of the largest firms.
There was also growth in self-reported complaints over five years with 60% self-reported in 2019 compared with 52% in 2015.
Disappointingly, complaints-handling timeframes continue to increase, even after the Committee highlighted this issue in a report published in October 2019. This is now an unacceptable trend. The new ASIC RG 271 requirement will tighten existing timeframes further, so it is critical that subscribers work to improve in this area.
More positively for clients, the number of complaints resolved in their favour increased in 2019 while the number of complaints resolved in favour of the broker dropped. In 17% of complaints, client and broker reached a mutual agreement, which could indicate a successful internal dispute resolution framework.
Further highlights from the data:
- 43% of all Code breaches related to non-compliance with client service standards for buying insurance.
- Four Code subscribers were responsible for more than two-thirds (67%) of the breaches involving scope of covered services.
- Code subscribers received 1,292 complaints that were handled via their internal dispute resolution processes – an increase of 23% over the 1,049 complaints received in 2018.
- Most complaints were about small business insurance, which represented 24% of all self-reported complaints for the year, up from 21% in 2018.
- Home building insurance complaints relating to home building policies fell to 8%. This has been one of the most complained-about products in recent years, representing, on average, around 15% of all complaints since 2016.
- Service was the most common issue of complaint, as has been the case each year since 2015.
The Committee was proud to launch its own website in July 2020. It is the central repository for all our publications and guidance resources and enables anyone to subscribe to receive updates from the Committee and to log a concern or a breach of the Code. It can be found at: www.insurancebrokerscode.com.au.