General Insurance Code of Practice: Overview of the Year

Transcription

1 General Insurance Code of Practice: Overview of the Year FOS Code Compliance and Monitoring Team April 2014 Page 1 of 55

2 Contents 1 This Annual Report 4 2 About the General Insurance Code of Practice 5 3 Year at a glance: The FOS Code Team s monitoring activities 6 4 Year at a glance: An industry overview 7 5 Code compliance monitoring and outcomes Outcomes of Code compliance monitoring activities The number and types of breaches Sources of breaches closed by FOS Code Breach causes and corrective actions Significant Code breaches Code Participants compliance initiatives Code Participants monitoring activities industry data How to read part 6 of the report Changes to data categories Code Participants data collection and reporting Policies Policies personal classes Policies commercial classes Claims Claims lodged personal classes Claims lodged commercial classes Declined claims Declined claims personal classes Declined claims commercial classes Withdrawn claims Internal Dispute Resolution Overview Personal classes internal disputes Commercial classes disputes received 37 7 Looking forward transition to the new Code General Insurance Code of Practice 39 New Code key changes and features 39 Checklist: top ten transition tips 42 Page 2 of 55

3 List of appendices 43 Appendix A: Current Code Participants 44 Appendix B: Aggregated breach data 47 Appendix C: Causes and corrective actions 50 Appendix D: Policies, claims, declined claims & internal disputes data 51 Appendix E: Five-year overview of industry data 52 Appendix F: Monitoring Code compliance 53 Page 3 of 55

4 1 This Annual Report Welcome to our Annual Report for the reporting year It reviews our work to improve standards of practice and service in the Australian general insurance industry, undertaken in collaboration with 153 general insurers and Lloyd s Australia Limited cover holders and claims administrators from around Australia. The report has been prepared by the Code Compliance and Monitoring Team, a separately funded business unit of the Financial Ombudsman Service (FOS), to honour our reporting obligations under the General Insurance Code of Practice (the Code). It reviews our key monitoring activities from 1 July 2012 to 30 June 2013 and analyses aggregated industry data to assess compliance with Code standards. Our role in the Code s governance structure is determined by the Code and a Deed of Adoption between FOS, the Insurance Council of Australia (ICA), the General Insurance Code Compliance Committee and each Code Participant. 1 The services that we provide are specified in a separate service level agreement between FOS and the ICA. Outcomes of our code compliance monitoring activities are reported to the General Insurance Code Compliance Committee, 2 the independent monitor of Code Participant performance against Code obligations. Identifying, self reporting and remedying non-compliant activity with any code of practice are critical for a successful self-regulatory framework. We have encouraged a positive culture of self reporting by Code Participants so that we can work with industry in a timely and responsive way to reduce risk and improve service delivery. We acknowledge the cooperation of the ICA and Code Participants in this endeavour. This report shares our experience of good industry practice and the initiatives of Code Participants to improve standards of practice and service in It is accompanied by a guide to help Code Participants transition to the new Code by 30 June The data described in this report has been collated from monitoring the activities of 153 general insurers and Lloyd s Australia Limited cover holders and claims administrators (Code Participants) who voluntarily subscribed to the Code in It consists of the outcomes of: our annual review of Code Participants compliance with the Code our investigations into alleged breaches of the Code significant breaches of Code obligations identified by us or reported to us by Code Participants, and Code Participants internal breach reporting and monitoring programs. 4 The report also outlines industry data gathered by Code Participants and reported to us in their Annual Returns, covering policies of insurance, claims, declined claims, withdrawn claims and internal dispute resolution (IDR) numbers during We have recorded Code Participants views on factors that may have influenced changes in the data since the previous reporting period, and noted where changes to our Annual Return process may have affected comparisons year on year. These considerations are described in detail within the report and must be kept in mind when interpreting the data. 1 The Code, sections 1.11 and The Code, section 7.14(a). 3 The 153 Code Participants comprised 60 general insurers and 93 Lloyd s Australia Limited cover holders and claims administrators. The current Code Participants are listed in Appendix A. 4 The Code, sections 7.2(a) and (b), 7.3, 7.5, 7.11, 7.12(a) and 7.12(b). Page 4 of 55

5 2 About the General Insurance Code of Practice The Insurance Council of Australia (ICA) launched its General Insurance Code of Practice (the Code) in July 2005 and it became operational on 18 July The version of the Code that was applied during the reporting year was released in February 2012 and came into effect on 1 July A revised 2014 General Insurance Code of Practice (the new Code) has since been introduced by the ICA. The new Code takes effect on 1 July 2014 and Code Participants have 12 months from that date to adopt it and complete transition. The Code was designed to raise the service standards of Code Participants in a number of areas, broadly described in Diagram 1. Code Participants, their employees, Authorised Representatives and Service Providers were required to comply with these standards. 6 Diagram 1: The Code standards Section 2 Buying Insurance Section 3 Insurance Claims Section 4 Responding to Catastrophes & Disasters Section 5 Information & Education Section 6 Complaints Handling Procedures Section 7 Code Monitoring & Enforcement The Code covers most general insurance products, which are broadly categorised in Diagram 2. It does not apply to workers compensation, marine insurance, medical indemnity insurance, 7 compulsory third party insurance, reinsurance, and life and health insurance products issued by life insurers or registered health insurers. 8 Diagram 2: Classes of general insurance covered by the Code Personal Classes Accident &/or Sickness Consumer Credit Home Motor Personal & Domestic Property Residential Strata Travel Commercial Classes Business Contractors All Risks Farm Industrial Special Risks Liability Motor Other Whereas this report is based on the activities of 153 Code Participants, subscription to the Code has increased overall to 156 Code Participants consisting of 54 general insurers and 102 Lloyd s Australia Limited cover holders and claims administrators. Current Code Participants are listed in Appendix A. 5 The current Code and earlier versions are available for download from 6 The Code, sections 1.6 and Medical Insurance Australia Pty Ltd, a medical indemnity insurer, has voluntarily adopted the Code. 8 The Code, sections 1.4 and 1.5. Page 5 of 55

6 3 Year at a glance: The FOS Code Team s monitoring activities Closed 78 breaches and dealt with 12 significant breaches Of the 12 significant breaches we identified five and Code Participants identified and reported seven. These significant breaches affected 188,086 customers, resulting in customer payments of $1,543,918. See pages 8 and 14 for more Distributed our Annual Returns 153 Code Participants completed our Annual Returns and provided insightful feedback on industry data. See pages 8 and 21 for more Updated our desktop reviews & self-assessment compliance statements These now align with the revised 2012 Code and our three-year compliance monitoring program, and balance compliance monitoring activities against risk areas and resources. Published the Queensland Flood Survey This report to the Insurance Council of Australia found the quality of decision-making around claims handling during natural disasters can also affect claims handling experience for customers. See page 52 for more Revised our stakeholder consultation strategy We created more opportunities for proactive engagement and feedback with consumer advocates, Code Participants and regulators. As part of this strategy we attended more than 30 meetings involving the Australian Securities and Investments Commission, Code Participants, consumer advocates, FOS External Dispute Resolution (EDR) and the ICA. Issues discussed included outcomes of the Queensland floods, Independent Code Review and Code monitoring and compliance. Our collaborative work with the ICA Code Reference Group helped to refine our Code monitoring framework and Annual Return process. Provided secretariat services We provided these services to the General Insurance Code Compliance Committee throughout , meeting with it on five occasions. Raised awareness of Code obligations and responsibilities & consumer rights We contributed to professional development training on codes of practice for the Financial & Consumer Rights Council delivered training programs for FOS EDR staff, increasing awareness of the Code and application of Code obligations in practice presented at the Melbourne Financial Services Compliance Managers Forum conducted workshops on industry codes and compliance at the FOS National Conference presented on code monitoring and compliance issues at the Financial Counselling Australia Conference EDR Forum. Conducted 43 Desktop compliance reviews and 161 investigations These activities examined alleged breaches of the Code and identified 56 breaches, which were subsequently rectified. See page 8 for more Page 6 of 55

7 4 Year at a glance: An industry overview Code Participants provided a range of data in their Annual Returns for , which we have aggregated (discussed in Parts 5 and 6) and summarised here. We have also included a five-year overview of key industry data in Appendix E. Code Participants: Employed 38,461 staff Code Participants also engaged 5,405 corporate Authorised Representatives, 15,973 individual Authorised Representatives, and engaged the services of 7,492 agents and independent contractors. 9 Issued 39,266,304 general insurance policies 1% 10 These policies consisted of 34,480,162 personal insurance policies (up 1%) and 4,786,142 commercial insurance policies (down 1%). See page 22 for more Declined 2.6% of claims lodged 2% This equated to 98,920 general insurance claims, comprising 94,058 personal insurance claims (up 3%) and 4,862 commercial insurance claims (down 14%). See page 28 for more Reported 31,894 internal disputes raised by customers 10% These consisted of 30,296 personal insurance internal disputes (up 11%) and 1,598 commercial insurance internal disputes (down 2%) See page 33 for more Significantly improved Code compliance frameworks A range of Code monitoring initiatives were put in place, increasing the number of self-identified and reported Code breaches. See page 19 for more Trained 35,155 people in the Code This included 21,631 employees and 13,524 individual Authorised Representatives. Received 3,770,454 general insurance claims 2.5% These comprised 3,229,518 personal insurance claims (down 2%) and 540,936 commercial insurance claims (down 3%). See page 25 for more Withdrew 172,201 general insurance claims 11 42% These comprised 170,311 personal insurance claims, (up 44%) and 1,890 commercial insurance claims (down 35%). See page 30 for more Internally reviewed 31,677disputes 11% This resulted in 22,318 outcomes in favour of Code Participants and 9,359 outcomes in favour of customers. See page 33 for more Self identified, remedied and reported 6,185 Code breaches 127% Breaches were remedied in various ways, mainly through coaching or further training for employees and/or Authorised Representatives in processes and systems. See pages 8, 46 and 49 for more 9 Agents and/or independent contractors are individuals engaged in the distribution of a Code Participant s products and other services, but are not its Authorised Representatives. 10 In most cases data reported as a percentage will be rounded up/down to the nearest whole number. 11 Withdrawn claims data for is indicative only for a number of reasons, including that not all Code Participants were able to provide data. See the introduction to Part 6.1 and Parts and 6.6. Page 7 of 55

8 5 Code compliance monitoring and outcomes Effective self reporting of breaches is critical for maintaining a robust self-regulatory framework. In , Code Participants identified and rectified 6,185 breaches through their own internal monitoring activities up 127% while we finalised 78 in association with the General Insurance Code Compliance Committee. 5.1 Outcomes of Code compliance monitoring activities The Code compliance breach data in this report reflects the: 1. Outcomes of our compliance monitoring activities during , drawn from our investigations of alleged Code breaches and significant breaches of the Code, and the outcomes of Code compliance reviews (via Desktop audit) and Code Participantassessed compliance statements. 12 Our aggregated breach data consists of breaches and significant breaches that we closed during the reporting period and subsequently reported to the General Insurance Code Compliance Committee (the Committee). 2. Outcomes of Code Participants internal Code monitoring activities during , in accordance with their Code monitoring obligation. 13 This breach data is collected from Code Participants once a year via our Annual Return process. This breach data excludes all breaches that we reported to the Committee. Both sets of aggregated data are presented in detail in Appendix B and we have described our Code monitoring function and responsibilities in Appendix F The number and types of breaches In we reported 78 closed breaches to the Committee. In addition, Code Participants reported through their Annual Returns that they had identified and rectified 6,185 breaches as a result of their Code monitoring activities, up 127% on the previous period. A number of Code Participants advised that the increases in self-identified breaches were partly due to changes to breach identification systems, improving their ability to quantify breaches on a per claim or per policy basis. The breach data is summarised in Table 1. Table 1: Breaches in Breaches closed and reported by FOS Code to the Committee Breaches Breaches identified by FOS Code Breaches identified by Code Participants reported to FOS Code by Code Participants in Annual Returns Significant Significant Code category Total breach Breach breach Breach Breaches Section 2: Buying 4 4 2,560 Section 3: Claims ,531 Section 4: Catastrophes 2 Section 6: Complaints ,092 Total ,185 The overall data shows that the majority of breaches closed by us were related to the claims handling standards under section 3 of the Code, whereas Code Participants reported an 12 The Code, sections 7.9, 7.12(a), 7.12(b). 13 The Code, section 7.2(a). Page 8 of 55

9 almost equal number of breaches of section 2 (buying insurance) and section 3 (claims handling). Our observations of the breach data are outlined below. We have highlighted these matters so that Code Participants may review their operations against these areas of risk as they transition to the revised Code. Section 2 Buying Insurance Section 2 of the Code describes various standards that apply to the initial enquiry and buying of insurance, the renewal of cover and the selling of insurance products by Code Participants employees and Authorised Representatives. The data shows that 41% of breaches (2,560) identified by Code Participants and 5% of breaches (4) that we closed arose from the standards of section 2. The data in Appendix B also shows that: 19% of breaches (1,157) identified by Code Participants arose from section and a further 117 breaches (2%) from section Both sections describe standards of fairness, honesty and transparency in the insurance sales process. Of the four breaches of section 2 that we closed, three were recorded against section and all of these were significant breaches (see Part 5.1.4). Code Participants identified 863 breaches (14%) of section 2.2, which requires a Code Participant to refund a premium to a customer within 15 business days, where a customer s policy permits them to cancel their policy of insurance. We did not identify any breaches of section 2.2 during the period. Section 3 Insurance Claims The standards of section 3 of the Code are extensive and cover the conduct of claims handling including decision-making, disclosures that must be made to a customer when their claim has been refused, the conduct of external Service Providers and financial hardship experienced by a customer or third party debtor. The Code s claims handling standards accounted for 78% of breaches closed by us and 41% of breaches identified by Code Participants. Data provided in Appendix B shows that 24 breaches more than a third of all breaches of section three closed by us involved the new standards in part (b) of section In addition, 27% of the breaches identified by Code Participants also related to section 3.5.5(b). The standards introduced in 2012 require a Code Participant to notify a customer about their right to: Ask for copies of information that the Code Participant relied on in denying the claim. Request a review of any decision to refuse to release such information. These breaches occurred because: A template used as a framework for communicating a claim denial to consumers was not updated to include the disclosures specified by section 3.5.5(b). Alternatively, an outdated claims denial template was used, even though an updated template had been provided to claims staff. We have provided a case study of a breach of section 3.5.5(b) that illustrates what may occur when outdated templates remain available to claims staff. The case study also Page 9 of 55

10 illustrates our approach to determining the cause, impact and scope of a breach, and how it should be addressed by a Code Participant to reduce the likelihood of a re-emergence of the issue. Case study A Code Participant issued claim denial letters that failed to inform customers of their right to ask for copies of information relied on in the assessment of their claim contrary to the standards outlined in section 3.5.5(b). These standards became operational on 1 July Code obligation: The Code Participant is required to notify a consumer of their right to ask for copies of information that the Code Participant relied on in denying the claim and request a review of any decision to refuse to release such information. Cause of breach: Some staff failed to use the Code Participant s updated claim denial templates, which reflected the Code s new requirements, and relied on old templates that they had kept on their personal drives. Senior claims staff failed to identify that incorrect templates were being used. Scope of breach: The Code Participant identified five customers who were not provided with information about their right to ask for copies of information relied on in the assessment of their claim. Corrective action: The Code Participant: Updated its processes; senior managers are now required to review all claim denial letters prior to sending them to customers. Instructed claims staff to delete the old template document. Reviewed all claim denial letters for claims received on or after 1 July 2012 to determine whether the letters complied with the Code. Wrote to all affected customers notifying them of the error and informing them of their rights. Reinforced the requirements of the Code with all relevant staff. Code Participants reported that 70% of section 3 breaches (1,779 breaches) arose from a failure to comply with section This standard requires a Code Participant to provide updates to a customer about the progress of the claim at least every 20 business days. We closed five breaches of section 3.2.3, including one significant breach which a Code Participant identified and reported to us (see Part 5.1.4). A number of Code Participants advised that their inability to meet the requirements of section coincided with their receipt of higher claims volumes due to severe weather events in January 2013 affecting New South Wales and Queensland. As a result, 1,000 of the 1,779 breaches identified by Code Participants were due to insufficient staff resources. The remaining breaches were due to claims staff not adhering to the requirement to provide an update to customers, contrary to internal processes. Code Participants reported that in addition to ensuring affected consumers were brought upto-date on the status of their claims, these breaches were addressed internally by: increasing staff numbers emphasising the Code obligation and the internal process that must be followed improving systems to ensure that claims tasks are effectively managed, and/or increasing monitoring through file audits and call monitoring. Page 10 of 55

11 The standards of sections and describe the standards that must be applied to claims handling by Code Participants and their employees and Service Providers. Both standards have in common elements of fairness and transparency as essential components of effective claims handling. The data in Appendix B shows that we closed three breaches of section 3.5.1, which included a significant breach identified and reported by a Code Participant (see Part 5.1.4). Code Participants reported five breaches of section via the Annual Return process less than 1% of all breaches of section 3. In relation to section 3.7.1, Code Participants reported no breaches of this standard through the Annual Return process. However, of the four breaches closed by us, two were significant breaches: a Code Participant identified and reported one, while we identified the other (see Part 5.1.4). More than 91% of the reporting by Code Participants against the claims handling standards was focused on meeting benchmarks for timeliness of actions in the course of claims processing. Section 6 Complaints Handling Procedures Section 6 of the Code describes the standards applicable to the conduct of complaints handling, including internal review of a complaint or a dispute, and communication of the outcome of a dispute, including referral to external dispute resolution services. Code Participants reported 1,092 breaches of section 6, accounting for 18% of self-identified breaches. Breaches of section 6 also accounted for 17% of all breaches closed by us. Appendix B shows that eight breaches closed by us involved section 6.1.1, which requires complaints handling to be conducted in a fair, transparent and timely manner. Of the breaches of section 6 identified by Code Participants, just over 2% arose from section Overall aggregated breach data Fairness and transparency are essential elements of the services provided to customers by Code Participants, their Authorised Representatives, employees and Service Providers. These principles appear throughout the Code in sections 2.1.4, 2.4.1, 3.5.1, and The breach data provided by Code Participants shows that 1,279 breaches, or 21%, arose from a lack of compliance with Code standards involving elements of fairness and transparency in dealings with customers, almost entirely due to breaches of sections and Of the 78 breaches closed by us, 18 breaches (23%) closed by us involved these standards. Key learning Based on our analysis of breach data, we recommend that Code Participants strengthen their breach reporting and Code compliance frameworks by: Analysing internal and external dispute resolution complaints and disputes data, and outcomes of disputes determined by FOS s EDR service, to identify issues relating to conduct requirements. Extending external and internal claims file audits to assess the quality of claims handling and decision-making, to ensure that the interests of customers are being appropriately balanced with their interests. Continuing to find other ways to identify and report on issues relating to fairness and transparency obligations in claims handling. Page 11 of 55

12 5.1.2 Sources of breaches closed by FOS Code The breaches that we report to the Committee are sourced through a number of channels as seen in Table 2. Code Participants were the predominant source of closed breaches in , referring 22 (28%) of the breaches closed by us. Reports of possible breaches by legal centres resulted in a further 21 breaches, up from 9 in the previous year. 16 (21%) of the breaches closed by us arose from matters referred to us by FOS s EDR scheme, down from 35 in In order for us to investigate these breach allegations, the financial services provider in question must be a Code Participant. At the time of completing this report, 48 Code Participants were not members of the FOS EDR scheme. A further 17% of Code breaches closed by us were identified through our annual Desktop compliance reviews. Table 2: Sources of referral for breaches closed by FOS Code Source Breaches Code Participant 22 Desktop Audit 13 Customer 5 FOS EDR 16 Legal Centre 21 Financial Counsellor 1 Total Breach causes and corrective actions Appendix C provides details of breach causes and the various corrective actions implemented by Code Participants in response to the breaches. Breach causes The top three causes of breaches closed by us in were: 1. A failure by staff, Authorised Representatives and/or Service Providers, to adhere to established internal processes and procedures, resulting in 41 breaches (53%) also the main cause in A failure to ensure that documents continued to comply with the Code s standards, resulting in 17 breaches (22%). 3. Administrative error, resulting in seven breaches (9%). Code Participants reported that 3,161 breaches (51%) identified by them were caused by a failure to follow internal processes. However, the second and third most common causes identified by Code Participants differed from those identified by us. Code Participants determined that: 25% of breaches (1,530) were due to an error or failure of a key software system, such as a system used to administer policies of insurance or a claims processing system. 21% of breaches (1,333) were caused by insufficient staff resources, leading to an inability to meet key timeframes, particularly in claims handling, which also affected internal complaints handling. Page 12 of 55

13 Key learning To ensure compliance with the Code s service standards, we recommend Code Participants: 1. Provide ongoing training to employees and Authorised Representatives in the processes they are expected to follow and the role they play in achieving compliance with service standards. 2. Monitor a new process to ensure that it is effective, has been understood by those who will be using it, and that the process is being applied. 3. Build key performance indicators into service level agreements with Service Providers who act on their behalf during claims handling. 4. Monitor the performance of employees, Authorised Representatives and Service Providers against Code obligations. 5. Review template documents on a regular basis to identify areas that require amendments to ensure continuing compliance. 6. Remove outdated documents from circulation. 7. Ensure that key areas of the business are adequately resourced so they can deliver their Code commitments to customers. Corrective actions in response to breaches Once the cause (or causes) of a breach has been correctly identified, a Code Participant must implement measures to remedy the non-compliance and reduce the likelihood of a recurrence. To rectify a breach, the results or impact of the breach must be addressed as well as the underlying cause. For example, a breach may have occurred as a result of using a non-compliant template document. To address such a breach, a Code Participant would be expected to: 1. Amend the template document to ensure it is compliant. 2. Remove the old template document from circulation. 3. Identify customers who may have been misinformed as a result of the use of the old template document. 4. Provide each affected customer with the requisite information. Most of the breaches closed by us were addressed by Code Participants providing remedial training, whether alone or in combination with other means. As seen in Appendix C, 38 out of 78 breaches were rectified at least in part through remedial training or coaching provided to Code Participants employees and/or Authorised Representatives, either on an individual basis or across an entire team. Code Participants also used remedial training solely or with other rectification tools in response to 1,345 breaches (22%). However, the main action taken by Code Participants to address internally identified breaches was to enhance or improve existing processes and/or systems, either as a standalone measure or in combination with other initiatives. This approach was used by Code Participants in response to 3,049 breaches (49%) Significant Code breaches We may determine that a breach of the Code is significant having regard to the Code s definition of significant breach (see Appendix F). Further, if a Code Participant identifies a Page 13 of 55

14 significant breach of the Code, it is required to report it to us within 10 business days (section 7.3). Significant Code breach data is aggregated with all other breach data. We count a significant breach of a particular Code standard as one breach for reporting purposes. However, a significant breach usually encompasses multiple individual breaches of the relevant Code standard. We dealt with 12 significant breach matters in , which are listed in Table 3. Seven significant breach matters were closed during while five remained open as at 30 June In total, 188,086 customers were affected by these significant breach matters. Total payments to those affected amounted to $1,543,918. The nature of the significant breaches we reported to the Committee, their causes and the actions taken to remedy them, are summarised in Table 4. Table 3: Significant breaches Section Total Conduct of sales process Adequate training of employees & Authorised Representatives Timeframe for making decision on simple claim and notifying customer of decision (a) Notify customer of required detailed information (c) Provide an initial estimate for claim decision Customer informed of claim progress Respond to customer s routine requests for information Claims conduct 3 Total 12 Key learning When we assess significant breaches we take into consideration a number of factors, as outlined below. The General Insurance Code Compliance Committee also considers these factors when reviewing our reports of significant breaches. 1. The nature of the significant breach and its duration. 2. Was there any consumer detriment? What was its nature and extent and how was the detriment established? 3. Did the Code Participant identify the significant breach and report it within the required 10 business days? If not, why not? 4. Whether the factors that led to the breach may have also led to other separate instances of non-compliance with Code obligations. 5. Was the incident also reported to ASIC as a significant breach of the Code Participant s Australian Financial Services Licence? 6. The relevant compliance history of the Code Participant and whether similar breaches had occurred previously. 7. Whether FOS EDR has received any complaints from consumers arising from the significant breach matter. 8. The effectiveness of the Code Participant s breach and incident reporting and management system. 9. The nature of the corrective action proposed and timeframes for completion. 10. Whether there were any other factors that FOS Code considered relevant to the significant breach. Page 14 of 55

15 Table 4: Summary of significant breaches, causes and corrective actions as at 30 June 2013 Code section Identified by Nature of significant breach and consumer impact Number of affected consumers Payments to affected consumers Other corrective actions taken by Code Participant Status FOS Code Misinterpretation of policy wording by a Service Provider resulted in a shortfall in payments to consumers for loss of rent claims. 197 $57,789 (including interest) Clarified application of policy wording with Service Provider. Counselled and re-trained relevant staff. Closed 3.1, 3.2.1(a) & (c) & 3.3 Code Participant A Service Provider was unable to process and determine some travel insurance claims within the relevant timeframes due to an unexpected increase in claims and call volumes. 6,380 Not applicable Monitored claims handling timeframes daily. Audited a sample of randomly selected files. Negotiated alternative timeframes with customers where appropriate. Recruited and trained more staff. Closed Code Participant Claims consultants failed to provide customers with a refund of excess paid on comprehensive motor vehicle insurance claims, following a decision to change the claim status from at fault to not at fault. 1,657 $153,334 (including interest) Changed systems to improve the excess refund process. Enhanced internal risk controls. Closed & Code Participant Processing of some travel insurance claims was delayed, due to a gap in a claims administration system. 755 Not applicable Customers were advised of the information that was required to complete claims processing. Implemented system changes and improved claims monitoring. Closed Page 15 of 55

16 2.1.4 & FOS Code Inadequate training and failure to monitor Authorised Representatives in relation to a new policy process led to failure to forward new Product Disclosure Statements (PDSs) to a number of customers, after a change of cover. 4,574 Not applicable Provided new PDSs to customers. Developed an automated solution. Improved monitoring of Authorised Representatives. Amended the breach management policy to ensure breach deliberations are fully documented. Closed FOS Code Inadequate monitoring of a new policy administration system resulted in various customers with comprehensive motor vehicle policies being charged an incorrect premium on renewal, contrary to policy terms and other consumer publications. 6,651 $644,892 Rectified the technical fault in the policy system. Audited the policy system to ensure its effectiveness. Introduced monthly monitoring of the system s operation to prevent recurrence. Open FOS Code Customers who held home insurance cover were charged an incorrect premium on policy renewal, contrary to policy terms and other consumer publications. Unclear and inconsistent consumer information about the available discounts contributed to the confusion. The Code Participant s breach committee identified this matter as a breach of its licensee obligations under the Corporations Act 2001 but did not consider whether there was also a breach of Code obligations. 103,894 $450,294 (including interest) Reviewed all disclosure documents to ensure consistency of information about available discounts. Enhanced breach incident management procedures to ensure Code obligations considered when significant breach of the law identified. Closed Page 16 of 55

17 2.1.4 FOS Code An incorrect premium was charged on renewal of a number of home insurance policies contrary to policy terms and other consumer publications. The Code Participant reported this matter to ASIC but did not adequately consider whether the matter had also breached the Code. 51,947 $237,609 (including interest) Amended the breach committee s processes to ensure that it considers matters from a Code perspective. Closed 3.1, 3.2.1(a) & (c) & Code Participant Delays occurred in processing some travel insurance claims, including whether to accept or deny a claim in some instances, due to an unexpected increase in claims volume. The delays were not reported to the Code Participant s risk and compliance area for several months. 2,700 Under assessment Brought affected claims within the relevant Code timeframes. Recruited more claims staff. Seconded staff from other teams. Enhanced monitoring of claims team activities by compliance and quality assurance areas. Open Code Participant A legal firm used by a Service Provider incorrectly informed a consumer that if negotiations to settle a strata insurance claim failed, the Code Participant s complaints handling procedures would not be available to the consumer. 1 Not applicable Correctly advised the consumer of the availability of complaints handling procedures. Took remedial action within the legal firm. Audited new files handled by the legal firm for several months. Open 2.4.5, 2.4.6(a), 2.4.6(c) & 2.4.8(a) Code Participant Failure to provide an Authorised Representative with relevant Code, insurance and legal training and failure to monitor their performance. A four-month delay occurred between the date the issue was identified and confirmation that it was a significant breach by its breach committee. Not applicable Not applicable Reviewed records to ensure that there were no additional compliance breaches or complaints about the Authorised Representative. Reviewed the products sold by the Authorised Representative, which showed that all transactions had occurred within the scope of its authority. Open Page 17 of 55

18 Increased staff numbers. 3.1 & Code Participant Delays occurred in determining liability in relation to Home insurance claims due to delays in actioning incoming customer correspondence. 9,330 Under assessment Revised operating model, which improved efficiency and increased capacity. Established a quick settlement and finalisation process focusing on prompt settlement of small claims with minimal evidentiary requirements. Open Total number of consumers affected: 188,086. Total payments to affected consumers: $1,543,918 Page 18 of 55

19 5.2 Code Participants compliance initiatives Individual Code Participants introduced several initiatives to improve Code monitoring and reporting frameworks in These have strengthened compliance risk assessment processes and further embedded compliance requirements within their businesses and across the industry. Table 5: Selection of Code Participants compliance initiatives Compliance and risk reviews, reporting and analysis Compliance and risk systems and processes Provided monthly reports to each business on the outcomes of Quality Assurance audits, indicating where more training or process improvements were required. Revised the scope of periodic compliance reviews to focus on regulatory compliance across all business units, including the Code. Introduced new compliance and risk software aligned with individual roles and other compliance and risk frameworks. Independently reviewed all IDR and EDR complaint files to assess the accuracy of processing, adherence to guidelines and policy coverage. Launched an integrated and single risk issue and incident system, simplifying the way that risks are managed. Introduced individual business or divisional compliance plans to capture compliance obligations and processes in place to support compliance. Developed an integrated system for managing operational risk and compliance across the business. Improved incident and breach cause analysis to provide better information for managers to coach their teams. Adopted new standards for compliance testing, improving the rigour of the testing program. Staff development and training Recruited a new training and sales development manager, increasing the frequency of onsite visits to Authorised Representatives to assess their compliance. Established a claims technical and training team and technical audit program. Appointed a dedicated compliance officer to analyse and review Code breaches and ensure Code changes are incorporated in all business areas. Improved monitoring of policy cancellations, which identified the need for more staff training to support Code requirements. Claims processing Introduced an IT system that ensures communication with customers occurs within Code timeframes. Implemented a Code monitoring report that prioritises claims for review and action to ensure correct procedures have been followed or a liability decision can be provided to the policyholder. Initiated a quality listening and quality file review program to ensure compliance. Distributed claims management guidelines to all staff. Introduced a process to deal with pending claims to help ensure Code timeframes for customer contact are met and to reduce the time that claims remain pending. Page 19 of 55

20 5.3 Code Participants monitoring activities Code Participants undertook several monitoring activities in as part of their obligation to monitor compliance with the Code. Following is a selection of these activities. Investigated internal processes and procedures identified in alleged Code breaches from FOS and compliance incidents. Audited business teams to improve processing, identify gaps and training requirements and provide constructive feedback to staff. Conducted operational assurance reviews across sales and claims teams to target compliance against regulatory obligations. Reported statistics, trends and significant matters identified through breaches and incidents registers to board risk and audit committees. Regularly reviewed complaints and reported outcomes to operational management, risk and compliance areas and board risk and audit committees. Monitored complaint/dispute cases to ensure compliance with timeframes and other Code requirements. Reviewed complaints registers to proactively identify systemic issues for prompt rectification. Conducted independent reviews if breaches related to a complaint or compliance-related incident benchmark. Reviewed Authorised Representatives sales processes annually (at a minimum) to ensure compliance with an organisation s processes and Code obligations. Required regular reporting by Service Providers and on-site audits. Reviewed risk and compliance frameworks and management strategies. Managed claims handling standards through prompts and escalation in workflow systems with a facility to report daily on the level of Code compliance. Implemented a due diligence process for document and communication integrity. Reviewed: - Letters to customers containing information about complaints procedures. - The end-to-end complaints process against Code requirements. - Policy administration activities, for example by testing a sample of policy cancellations against Code requirements. - Training records of sales, claims and policy administration staff to check training had been completed. - Claim files and processes against Code requirements. Page 20 of 55

21 industry data This data outlines the nature and extent of the Australian general insurance industry in While policy numbers remained steady overall, sizeable growth was recorded in certain classes of insurance, mirroring changes in Australian society more broadly. Significant increases were also recorded in the number of internal disputes and declined claims, which warrant closer scrutiny from industry. 6.1 How to read part 6 of the report Part 6 examines policies, claims, declined claims, withdrawn claims and internal disputes data provided to us by Code Participants. All data, except withdrawn claims data, is presented in full within Appendix D and discussed in Parts and 6.6. Withdrawn claims data is presented and discussed in Part 6.5. The following factors must be kept in mind when interpreting this year s data and attempting to draw conclusions and identify trends about particular classes of general insurance Changes to data categories We revised the way we categorised some of the data about policies, claims, declined claims, withdrawn claims and internal disputes: Personal classes of general insurance: Data previously reported under Home Building, Home Contents and Home Building and Contents general insurance products has been aggregated under a single class called Home. This change has not affected the data. We introduced Residential Strata as a stand-alone class of general insurance in Previously the relevant data was reported under Home Building. This change means that: - the separation of Residential Strata data from Home data has partly contributed to the changes reported in relation to Home data for policies, claims and declined claims, and - it is not possible to provide any comparative data for Residential Strata. Commercial classes of general insurance Data for Aviation and Builders Warranty classes is no longer reported separately and the data has been reported under Other. This change has not affected the data Code Participants data collection and reporting Following consultation with Code Participants, we have identified several other factors which in our view have contributed to variations in the data, when compared to We have referred to specific contributory factors where relevant in our discussion about particular classes of insurance and outlined the principal factors here: The ways in which Code Participants record and subsequently report their data continues to vary. However, work is underway to harmonise reporting within industry, particularly in relation to its ability to report on withdrawn claims. Some Code Participants have counted claims against combination or package products, such as Page 21 of 55

22 combined home building and contents insurance or farm pack insurance products, as single claims, while other Code Participants have counted them as multiple claims. Similarly, some Code Participants were able to count each class separately under a package policy, such as in the case of farm pack insurance policies, whereas others were unable to do so. Several classes of general insurance include products which, while contractually existing between a general insurer and a single named policyholder, provide cover for the benefit of several or more unnamed individuals (third party beneficiaries). Consequently, some Code Participants were unable to quantify the number of individuals who may benefit under such policies. As a result, claim numbers may appear to be disproportionately high against the number of policies in some classes. For example: - Employees covered by a group Accident and Sickness policy. - Travel cover contractually held by a financial institution and provided as a benefit to its credit card holders. A Residential Strata plan that may cover from two unit owners to a complex containing multiple apartments. Not all Code Participants currently have the capacity to fully record withdrawn claims data. Where a Code Participant is able to provide withdrawn claims data, that ability does not necessarily extend to each class of business that it underwrites. As a result, data about withdrawn claims for is indicative only. 6.2 Policies The total number of general insurance policies remained relatively steady, with spikes in some classes as shown in Charts 1 and 2. Code Participants reported that 39,266,304 general insurance policies were held by individual and business customers in , an increase of 1% on policy numbers. The number of personal insurance policies reported by Code Participants increased slightly to 34,480,162, while commercial insurance policies fell slightly to 4,786,142. Personal insurance policies represented 88% of all policies held by customers. The top three general insurance classes consisted of personal classes of business: Personal Motor (13,291,046 policies) Home (10,678,908 policies), and Travel (5,172,203 policies). Page 22 of 55

23 Chart 1: Personal insurance policies 14,000,000 12,000,000 10,000,000 Policies Policies ,000,000 6,000,000 4,000,000 2,000,000 0 Residential Strata Accident & Sickness Consumer Credit Insurance Personal & Domestic Property Travel Home Motor Personal Chart 2: Commercial insurance policies 2,500,000 2,000,000 Policies Policies ,500,000 1,000, ,000 0 Contractors All Risks Industrial Special Risks Other Farm Motor Liability Business Commercial Page 23 of 55

24 6.2.1 Policies personal classes Table 6 illustrates the number of personal insurance policies held by customers in by class. The number of personal insurance policies reported by Code Participants increased only slightly on data. Code Participants reported that there were 13,291,046 Personal Motor policies held by customers, 3% more than in Personal Motor represented the largest class of insurance across all general insurance classes. The overall number of Home policies decreased slightly by 4%. More than half of the 4% fall is due to the separation of 174,457 Residential Strata policies, previously recorded under the former Home Building category. As to the balance of the decrease, Code Participants reported that a number of factors may have contributed to this such as: The types of Home policies held by customers in changed. Code Participants identified that consumer uptake of combined home building and contents insurance products fell during , suggesting reduced consumer demand for, or reduced availability of, the combined product. At the same time policy numbers for stand-alone home building and home contents products increased. Not offering to renew some Home policies due to revised underwriting guidelines regarding flood risk. Code Participants also reported receiving more disputes from customers about decisions to not offer renewal (see Part 6.6.2). The increased cost of some Home policies due to the addition of flood cover. This outcome was identified by Code Participants as one of the factors contributing to more disputes about the cost of buying Home insurance products (see Part 6.6.2). We realise that there are currently a number of government and industry initiatives exploring aspects identified in this data. As a result, we will maintain a watching brief on the year on year Home policy and internal disputes data, to identify any trends associated with accessibility to insurance cover. Table 6: Personal classes policies Personal Variance Accident & Sickness 1,087,968 1,119,571-3% Consumer Credit 1,142, ,648 16% Home 10,678,908 11,123,761-4% Motor 13,291,046 12,877,716 3% Personal & Domestic Property 2,933,151 2,880,109 2% Residential Strata 174,457 N/A N/A Travel 5,172,203 5,195,270-0% Personal total 34,480,162 34,180,075 1% Page 24 of 55

25 Policy numbers were up 16% on data for Consumer Credit. According to Code Participants this was due to expanded availability of Consumer Credit products through motor dealers, as well as greater distribution through financial institutions (see Part 6.6.2) Policies commercial classes Data about commercial insurance policies provided in Table 7 shows that Business remained the largest of the commercial classes. Policy numbers increased in Contractors All Risks, Farm and Industrial Special Risks classes. Code Participants have reported that this is due to an increased focus on growing these areas of business. Table 7: Commercial classes policies Commercial Variance Business 1,939,481 1,882,195 3% Contractors All Risks 70,111 41,858 67% Farm 434, ,189 77% Industrial Special Risks 88,483 60,265 47% Liability 1,347,332 1,595,125-16% Motor 571, ,969-3% Other 334, ,642-19% Commercial total 4,786,142 4,827,243-1% 6.3 Claims Customers lodged 3,770,454 claims with Code Participants during the reporting year, consisting of 540,936 commercial insurance claims and 3,229,518 personal insurance claims. The data is presented by class in Chart 3 on a proportional basis. The claims data in this report consists of claims lodged during the reporting year and has not been adjusted for claims that were subsequently withdrawn by customers or discontinued during the reporting year. The data indicates that claim numbers fell 2% in Most general insurance claims were made against personal insurance policies and accounted for 86% of all claims lodged during The claims-to-policy ratio for all claims was 9.6%, slightly down from 9.9% in More than half of all claims in this reporting period were lodged under a motor vehicle insurance product: Personal Motor attracted 45% of all claims while Commercial Motor accounted for a further 7%. Home insurance products resulted in 21% of all claims. Page 25 of 55

26 Chart 3: Claims by class Commercial Business 2% Commercial Contractors All Risks Commercial Farm 6% 9% 4% <1% 1% Commercial Industrial Special Risks 1% Commercial Liability 1% Commercial Motor 7% Commercial Other Personal Accident & Sickness Personal Consumer Credit Insurance 45% <1% 2% 1% Personal Home 21% Personal Motor Personal Residential Strata Personal Travel Personal & Domestic Property Claims lodged personal classes Although the overall number of personal insurance claims lodged during dropped 2%, there was extensive variation within particular classes as seen in Table 8. Personal & Domestic Property claims increased 97% while Home claims fell 22% during According to Code Participants: While overall policy numbers for Personal & Domestic Property experienced a 2% increase (see Table 6), the increase in claims for this class was consistent with increased sales of particular products such as pet insurance, eyewear protection insurance, tyre and rim insurance, tickets/events insurance and warranty. The fall in Home claims is consistent with the positive impact of improved weather conditions on claims activity during The removal of 68,846 Residential Strata claims, previously reported under the former Home Building class, has also contributed to the change in the data. The number of claims recorded against Residential Strata appears to be disproportionately high when compared to the 174,457 policies reported for this class (see Table 6). This reflects the nature of Residential Strata insurance policies (plans), where a single plan may cover the owners of two units on a single lot or multiple apartments within a single complex. Policy data for this class of business is reported on the basis of the number of plans and not the number of units covered by an individual plan. Page 26 of 55

27 Table 8: Personal classes number of claims Personal Variance Accident & Sickness 58,277 61,075-5% Consumer Credit 27,859 27,388 2% Home 773, ,189-22% Motor 1,713,573 1,815,057-6% Personal & Domestic Property 349, ,063 97% Residential Strata 68,846 N/A N/A Travel 238, ,181 0% Personal total 3,229,518 3,309,953-2% Claims lodged commercial classes Table 9 describes comparative data for commercial insurance claims. The data shows that the overall number of commercial claims contracted by 3%. Commercial Motor accounted for most of the commercial claims this year, while on a proportional basis Industrial Special Risks experienced the largest increase. Code Participants reported that the increase in claims in Industrial Special Risks is consistent with growth in sales (see Table 7). Table 9: Commercial classes number of claims Commercial Variance Business 144, ,345-13% Contractors All Risks 6,821 7,206-5% Farm 44,588 45,316-2% Industrial Special Risks 21,307 19,270 11% Liability 40,786 41,342-1% Motor 273, ,549 6% Other 8,660 17,003-49% Commercial total 540, ,031-3% Page 27 of 55

28 6.4 Declined claims A declined claim is one where a Code Participant has made a decision to deny indemnity having had regard to the terms and conditions of the particular policy. It excludes partially accepted claims and withdrawn claims data. A claim that has been declined during may have been lodged during an earlier reporting period. Chart 4 provides the declined claims data across all classes of general insurance in on a proportional basis. When assessed against the 3,770,454 claims lodged during , the number of claims declined by Code Participants represented 2.6% of all claims lodged. Code Participants declined 98,920 claims, representing an increase of 1,802 declined claims (2%) when compared with Declined claims consisted of 4,862 commercial insurance claims and 94,058 personal insurance claims. Code Participants reported that their capacity to capture data and accurately identify declined claims continued to improve during the reporting period, which contributed to the overall increase in declined claims for Chart 4: Declined claims by class Commercial Business Commercial Contractors All Risks 1% Commercial Farm 7% Commercial Industrial Special Risks Commercial Liability 20% Commercial Motor Commercial Other Personal & Domestic Property Personal Accident & Sickness Personal Consumer Credit Insurance 43% 2% <1% 1% <1% 1% 1% Personal Home Personal Motor 19% 0% Personal Residential Strata 3% 2% Personal Travel Page 28 of 55

29 6.4.1 Declined claims personal classes Table 10 shows that the number of declined claims for personal insurance classes grew 3% between and The overall increase in declined personal insurance claims is due to Personal & Domestic Property, which recorded a 218% increase in the number of declined claims. This is against a background of an equally significant growth in claims of 97% (Table 8) and a 2% increase in policy numbers (Table 6). We have asked industry for its response to the increased number of declined claims. Code Participants have reported that in their view the principal reason underlying their decline of Personal & Domestic Property claims was that the events giving rise to the claims fell outside the scope of the applicable policies. We believe the increase in declined claims is significant and requires further assessment by Industry to identify contributory factors. As a result, we will continue to monitor this trend during by increasing our focus on compliance with the Code obligations underlying decision making. Declined claims recorded in all other classes of personal insurance (except Residential Strata, where comparative data is not available) either remained steady or fell. Table 10: Personal classes number of declined claims Personal Variance Accident & Sickness 1,854 2,434-24% Consumer Credit Insurance 3,184 3,171 0% Home 42,341 48,550-13% Motor 7,350 7,201 2% Personal & Domestic Property 18,534 5, % Residential Strata 763 N/A N/A Travel 20,032 24,262-17% Personal total 94,058 91,451 3% Declined claims commercial classes In , Code Participants declined 4,862 commercial claims, a decrease of 14% compared to data, as shown in Table 11. While Farm, Industrial Special Risks and Motor experienced substantial increases in declined claims, the overall volume is comparatively low. Page 29 of 55

30 Table 11: Commercial classes number of declined claims Commercial Variance Business 2,186 2,787-22% Contractors All Risks % Farm % Industrial Special Risks % Liability % Motor % Other % Commercial total 4,862 5,667-14% 6.5 Withdrawn claims A withdrawn claim is a claim that has been lodged with a Code Participant, but for various reasons has been discontinued before the Code Participant determines whether to accept or deny liability for the claim. The term withdrawn claim covers claims that a Code Participant may variously describe as withdrawn, cancelled, closed or discontinued. The withdrawal of a claim may have been initiated by either the customer or the Code Participant, for one or more reasons (ASIC Report 245, page 20). A claim that was withdrawn during this reporting period may have been lodged during an earlier reporting period. Withdrawn claims data for is presented in Charts 5 and 6. This is only the second year that we have collected withdrawn claims data from Code Participants. We believe that the data presented here should be considered as indicative only for the following reasons: Code Participants have reported that claims staff showed an improved understanding of what constitutes a withdrawn claim during , which has led to continuing improvement in the accurate recording of this type of data. Not all Code Participants have a capacity at this stage to record withdrawn claims data. Some Code Participants that have reported data are not yet able to do so for all classes of business underwritten by them. Page 30 of 55

31 Not all Code Participants currently record the reasons for withdrawal of claims. Of those Code Participants that do record reasons, not all are able to quantify withdrawn claims against a particular reason. While last year 55 Code Participants provided withdrawn claims data, the number of Code Participants able to provide data this year increased to 61, consisting of 41 general insurers and 20 Lloyd s Australia Limited coverholders. These 61 Code Participants reported that 172,201 claims were withdrawn during , an increase of 42% on the previous year s data. Almost all (99%) withdrawn claims were recorded within personal classes of general insurance. Code Participants reported increased withdrawn claim numbers across all personal classes of general insurance except in relation to Residential Strata, for which separate data was reported for the first time, and Travel, which recorded a decrease in withdrawn claims. In addition to an increase in the number of Code Participants reporting withdrawn claims data, some Code Participants highlighted that the introduction of a new standard, outlined in section 3.4.3, may have also contributed to the increases seen in withdrawn claims data across the majority of personal classes of general insurance. Section became operational on 1 July 2012 and applies only to specified classes of policies, which consist of motor vehicle, home building, home contents, sickness and accident, consumer credit and travel. The standard provides that if a customer asks a Code Participant whether a specified policy covers them for a loss they have suffered, the Code Participant must: Ask the customer whether they would like to lodge a claim Explain that if the customer wishes to proceed with the claim, the question of coverage will be fully assessed, and Not discourage the customer from lodging a claim, even if the Code Participant believes that it is unlikely to be accepted. Fewer withdrawn claims were recorded in all commercial classes of insurance except in relation to Farm and Industrial Special Risks, which recorded increased numbers (against low volume). Of note, 79,318 Personal Motor claims were withdrawn, up 70%; 78,738 Home claims were withdrawn, up 30% and 6,436 Personal & Domestic Property claims were withdrawn, up 133%. Within the commercial classes, increased withdrawn claims data was recorded for Industrial Special Risks (increasing 94.5%) and Farm (increasing by15.2%). Some Code Participants have been able to identify a number of reasons for the withdrawal of claims during These typically included: a policy exclusion applied and/or a policy condition was not met the policy did not provide cover for the damage or loss claimed the claim was withdrawn by the customer after the insurer investigated the claim the customer did not or was unable to provide evidence to support their claim a duplicate claim had been lodged a third party demand was not pursued the claim was lodged with the wrong insurer the customer decided to claim directly from a third party the amount being claimed was less than the applicable excess the claim was lodged incorrectly, and property reported as stolen was subsequently recovered undamaged. Page 31 of 55

32 Commercial Personal Chart 5: Personal insurance withdrawn claims Accident & Sickness Residential Strata NA 272 Withdrawn Withdrawn Consumer Credit Insurance Travel Personal & Domestic Property 7,468 4,556 2,761 6,436 Home 60,366 78,738 Motor 46,728 79,318 Chart 6: Commercial insurance withdrawn claims 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Contractors All Risks Farm Withdrawn Withdrawn Other Industrial Special Risks Motor Liability Business 1,054 1, Page 32 of 55

33 6.6 Internal Dispute Resolution This part of the report outlines internal dispute resolution (IDR) data across all classes of general insurance in , including IDR outcomes. Comparative data is provided where possible or relevant in this part and the complete data is presented in Appendix D. Code Participants are required to have an internal process for dealing with complaints and disputes received from their customers and from third parties in defined circumstances. 14 This internal process is described as an internal dispute resolution (IDR) process and usually comprises an: 1. Internal dispute resolution phase for complaints, as described in the standards of sections 6.2 to 6.5 of the Code, and 2. Internal dispute resolution phase for disputes (unresolved complaints), as described in sections 6.6 to 6.9 of the Code. The Code defines complaint and dispute as follows: "Complaint" means an expression of dissatisfaction made to us related to our products or services or to our complaints handling process where a response or resolution is explicitly or implicitly expected. "Dispute" means an unresolved complaint. The data discussed in this part of the report covers: 1. The number and types of internal disputes raised by customers with Code Participants during the reporting period. This data represents unresolved complaints, which customers have asked Code Participants to internally review and treat as disputes, in accordance with section 6.6 of the Code. 2. The number of disputes internally reviewed by Code Participants during the reporting period and their outcomes. This means that Code Participants have internally reviewed the disputes resulting in a decision in favour of themselves or in favour of their customers. At the conclusion of this process, Code Participants are required to provide a written response to customers about the outcome, in accordance with section 6.9 of the Code Overview Chart 7 shows that customers lodged 31,894 internal disputes during , an increase of 10% on This figure comprises: 30,296 internal disputes about personal classes of insurance accounting for 95% of all internal disputes, and 1,598 internal disputes regarding commercial classes of insurance. Appendix E presents a five-year overview of industry data, including internal disputes data, showing that since , the number of all internal disputes received by Code Participants has continued to increase year to year. 14 The Code, sections inclusive. Page 33 of 55

34 The data in Chart 7 shows that Code Participants internally reviewed 31,677 disputes, up by 11% on data. In relation to IDR outcomes, 70% of internal reviews resulted in outcomes in favour of Code Participants and 30% in favour of customers, consistent with outcomes for Chart 7: Internal disputes comparative data Received Outcomes 33,000 32,000 31,000 30,000 29,000 28,000 1,598 30,296 Commercial Personal 1,635 35,000 30,000 25,000 20,000 15,000 9,359 [30%] Customer Code Participant 8,390 [30%] 22,318 [70%] 20,010 [70%] 27,000 26,000 27,240 10,000 25,000 5,000 24, Personal classes internal disputes The overall number of internal disputes drawn from personal classes of insurance in is shown in Chart 7. The data shows that Code Participants received 30,296 disputes, 11% more than in At the time of writing our report, FOS had released data about the number of general insurance disputes it had received during the first two quarters of The data shows that FOS s EDR scheme had received 4,241 general insurance disputes between 1 July 2013 and 31 December 2013, representing a fall in disputes when compared to the equivalent period in Although data since shows that the number of internal disputes regarding personal insurance products and services has increased year to year, the number of general insurance disputes received by FOS s EDR scheme fell 10% between and FOS EDR data 17 shows that it received 9,468 general insurance disputes in , representing 35% of all personal general insurance internal disputes (27,240) received by Code Participants during Financial Ombudsman Service Circular: Issue 15 Spring 2013 at and Issue 16 January 2014 at 16 The number of personal insurance internal disputes received by Code Participants in was up 26% on data. 17 Financial Ombudsman Service Annual Review at Page 34 of 55

35 Chart 8 shows that Personal Motor accounted for 47% of internal disputes related to personal insurance products or services, while Home accounted for a further 40%. These results are consistent with previous reporting periods. All classes of personal insurance (except Residential Strata where comparative data is not available) reported higher internal dispute numbers in , as follows: Accident & Sickness, up 22%, Consumer Credit Insurance, up 54%, Home, up 8% Motor, up 9% Personal & Domestic Property, up 24%, and Travel, up 16%. Overall, internal disputes about claims increased 12% while internal disputes about buying insurance increased 10%. According to Code Participants, the following factors contributed to increases in internal dispute numbers: Home and Motor claims made after the significant weather events of being closed during Premium issues due to the inclusion of flood cover in Home policies. Greater transparency about complaints processes. Decisions by Code Participants not to renew Home policies due to revised underwriting guidelines regarding flood risk. The increase in internal disputes about Personal & Domestic Property products or services was not unexpected given an increase in declined claims for this class. However, the overall number of internal disputes for this class is lower than we would have expected given the number of declined claims seen in (see Table 10). We will continue to monitor developments during Data about the number and outcomes of disputes internally reviewed by Code Participants across personal classes of insurance is described in Chart 9. The data shows that most internal disputes resulted in outcomes in favour of Code Participants, which is consistent with IDR data reported in previous years. We encourage industry to examine internal resolution outcomes across all classes of business together with FOS EDR information, and to monitor trends carefully. The results may lead to enhanced internal decision-making, not only in relation to disputes, but also in relation to claims outcomes. We hope it may also reduce the number of disputes customers refer to IDR and EDR. Page 35 of 55

36 Personal Chart 8: Personal insurance internal disputes received by Code Participants Disputes Disputes Motor Home 14,305 13,130 12,106 11,247 Travel 2,093 1,799 Personal & Domestic Property Residential Strata Consumer Credit Insurance Accident & Sickness ,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Chart 9: Personal Insurance outcomes of completed internal disputes in Customer Participant Accident & Sickness 29% [73] 71% [177] Consumer Credit Insurance 33% [101] 67% [101] Home 30% [3,165] 70% [8,507] Motor 30% [4,296] 70% [10,020] Personal & Domestic Property 42% [318] 58% [434] Residential Strata 29% [110] 71% [271] Travel 21% [429] 79% [2,093] 0% 20% 40% 60% 80% 100% Page 36 of 55

37 Commercial Commercial classes disputes received The number of internal disputes about commercial insurance classes decreased slightly (2%) during the reporting year, as described in Chart 10. Business resulted in the largest number of internal disputes, down 6% on data. Internal disputes about Farm and Industrial Special Risks insurances increased compared to data. Chart 10: Commercial insurance internal disputes received by Code Participants Disputes Disputes Business Motor Farm Liability Other Industrial Special Risks Contractors All Risks The data in Chart 11 provides the outcomes for commercial insurance disputes internally reviewed by Code Participants. Overall, 72% of internally reviewed disputes resulted in outcomes in favour of Code Participants and 28% in favour of customers. As with personal classes of insurance, these outcomes were relatively consistent with IDR data provided in earlier years. Page 37 of 55

38 Chart 11: Commercial insurance outcomes of internal disputes in Customer Participant Business 25% [149] 75% [455] Contractors All Risks 8% [2] 92% [22] Farm 34% [86] 66% [169] Industrial Special Risks 35% [27] 65% [50] Liability 31% [51] 69% [111] Motor 34% [93] 66% [178] Other 11% [9] 89% [70] 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Page 38 of 55

39 7 Looking forward transition to the new Code We worked together with Code Participants throughout to improve standards of practice and service, share our experience of code compliance and showcase areas of good industry practice. This has placed us all in a strong position to transition smoothly to a revised code General Insurance Code of Practice The Insurance Council of Australia (ICA) has introduced a revised 2014 General Insurance Code of Practice (the new Code), effective 1 July 2014, with a 12-month transition period for Code Participants. An independent review of the current Code, conducted by Mr Ian Enright and published by the Insurance Council of Australia (ICA) in 2013, made a series of recommendations that have been incorporated into the new Code. The new Code and the ICA s media release may be downloaded from its archive for 10 February 2014 via Importantly, the review focused on: Improving community awareness and understanding of general insurance products. Improving standards for those experiencing financial hardship. Increasing education and training for Code Participants employees and Service Providers (known as Service Suppliers under the new Code) about the effect and application of Code obligations. New Code key changes and features The new Code establishes a transparent and independent governance framework, which includes the creation of an independent Code Governance Committee that holds responsibility for monitoring and enforcing compliance with the Code. We look forward to providing Code administration and secretariat services to the Committee. The application of the new Code s standards to general insurance products is dependent on whether the product is a Retail Insurance or Wholesale Insurance product. The new Code states that Retail Insurance : means a general insurance product that is provided to, or to be provided to, an individual or for use in connection with a Small Business, and is one of the following types: (a) a motor vehicle insurance product (Regulation ); (b) a home building insurance product (Regulation ); (c) a home contents insurance product (Regulation ); (d) a sickness and accident insurance product (Regulation ); (e) a consumer credit insurance product (Regulation ); (f) a travel insurance product (Regulation ); or (g) a personal and domestic property insurance product (Regulation ), as defined in the Corporations Act 2001 and the relevant Regulations. While all of the standards apply to Retail Insurance products, only some standards apply to Wholesale Insurance products. If an insurance product falls outside the scope of Retail Insurance it will be treated as a Wholesale Insurance product. Page 39 of 55

40 The definition of Retail Insurance and the selective application of the new Code s standards to Wholesale Insurance are significant for Code Participants who are also members of the Financial Ombudsman Service (FOS). Section 10 of the new Code prescribes the standards applicable to complaints and disputes and applies only to complaints and disputes about Retail Insurance as defined by the new Code. Broadly, the standards describe a Code Participant s obligation to provide consumers with access to its internal complaints process and to notify a consumer of their right to take their complaint to FOS s EDR service if dissatisfied with the Code Participant s final decision. At the same time, a Code Participant who is a FOS member for EDR purposes has an overriding obligation under FOS s Terms of Reference (TOR) to provide individuals, small businesses and third party beneficiaries with access to its IDR process and subsequently referral to FOS for complaints and disputes arising from general insurance products within FOS s TOR. However, the range of general insurance products covered by FOS s TOR is greater than that covered by section 10 of the new Code. For further information about the general insurance products covered by FOS s Terms of Reference please refer to Some of the key features and changes introduced by the 2014 Code are summarised in Table 12 on the next page, followed by a checklist to help Code Participants transition to the new Code during Page 40 of 55

41 Table 12: 2014 Code key features and changes Code sections Is Retail Covered? Is Wholesale Covered? Some key features and changes Terms highlighted in bold text are defined by the new Code. Section 4 Buying Insurance Yes No Applies to an Insured but not to a Third Party Beneficiary. Code Participants (CPs) must conduct their sales processes & services efficiently, honestly, fairly & transparently. CP communications with an Insured to be in plain language. CP must give written notices to an Insured about non-payment of premium instalment & cancellation of instalment policy. Section 5 Employees and Yes Yes Employees & Authorised Representatives must be trained in the Code. Authorised Representatives Other training & education must be appropriate for professional & competent delivery of services. Section 6 Service Suppliers Yes No Service Suppliers must provide their services efficiently, honestly, fairly and transparently. CPs contracts with Service Providers must reflect Code standards relevant to the services that they provide. Section 7 Claims Yes No Applies to an Insured including a Third Party Beneficiary & they may make a Complaint about any aspect of claims process. Cannot discourage an Insured from lodging a claim & must inform them that coverage will be fully assessed if asked whether loss is covered. Timeframes apply to claims handling & must be conducted honestly, fairly, transparently & in a timely manner. Decision to deny a claim must be in writing with reasons & disclosure of right to access Complaints process & information underlying decision. Section 8 Financial Hardship Yes Yes Continues to apply to third party debtors & now applies to an Insured or a Third Party Beneficiary who owes money. Standards to not apply to payment of premiums. CPs must follow Australian Competition and Consumer Commission (ACCC) & ASIC debt collection guidelines & recovery action to be put on hold if hardship assistance is requested. Consumers may ask for release, discharge or waiver of debt/obligation & they are entitled to access Complaints process if hardship assistance is refused. Section 9 Catastrophes Yes No Applies to an Insured including a Third Party Beneficiary. CPs must respond to Catastrophes efficiently, professionally, in a practical and compassionate manner. Timeframe for review of a catastrophe property claim extended to 12 months. Section 10 Complaints and Yes No Applies to an Insured including a Third Party Beneficiary. Disputes CPs must conduct complaints handling fairly, transparently & in a timely manner. CPs must publish information about its Complaints process on its website & in relevant communications. Specifies timeframes applicable to each stage of Complaint process. CPs must provide consumers with a written response to their Complaint with reasons for its final decision and consumers right to take the matter to FOS & the timeframe for doing so. Section 11 Information and Education Yes Yes Increased focus on Code promotion and initiation. CPs are asked to actively promote the new Code and to try to initiate & facilitate programs to actively improve financial literacy & knowledge of the general insurance industry. Page 41 of 55

42 Checklist: top ten transition tips Mapping 1. Undertake a mapping exercise of the new Code against the current Code to identify what is new, what has changed and what remains the same. Communications with consumers and consumer documents 2. Review and revise all consumer communications, consumer marketing and disclosure documents, including template documents and material on websites. Ensure that outdated material and templates are removed from circulation. Training 3. Plan and schedule training in the new Code for employees and/or Authorised Representatives; ensure it has been completed to a competent standard. 4. Review and revise other training of employees and/or Authorised Representatives, including continuing training requirements, to ensure content is appropriate and that they can provide competent, professional services. 5. Provide appropriate training to employees and/or Authorised Representatives about any changes to procedures, processes and/or systems. Contracts with Authorised Representatives and Service Suppliers 6. In relation to Authorised Representatives, review and revise contracts to ensure consistency with the new Code and that Authorised Representatives are aware of their Code obligations. 7. In relation to Service Suppliers, review and revise contracts to ensure that they reflect the standards of the new Code as they apply to their services. Procedures, processes and systems 8. Review and revise all procedures, processes (including template documents) and systems to ensure compliance with the new Code s standards. Monitoring compliance 9. Monitor compliance by employees, Authorised Representatives and/or Service Suppliers to ensure new Code s obligations are being adhered to and that procedures are being applied consistently, and to identify areas that may require development or further education and training. 10. Review and revise compliance and monitoring frameworks and tools to enable effective Code compliance monitoring. Page 42 of 55

43 List of appendices 1. Appendix A: Current Code Participants Page Appendix B: Aggregated breach data Page Appendix C: Causes and corrective actions Page Appendix D: Total policies, claims, declined claims and internal disputes data for Page Appendix E: A five-year overview of industry data Page Appendix F: Monitoring code compliance Page 53 Page 43 of 55

44 Appendix A: Current Code Participants General Insurers AAI Limited 2. ACE Insurance Ltd 3. AIG Australia Ltd AIOI Insurance Co Ltd 5. Allianz Australia Insurance Ltd 6. Ansvar Insurance Ltd 7. Assetinsure Pty Ltd 8. Auto & General Insurance Company Ltd 9. AVEA Insurance Ltd 10. Calliden Insurance Ltd 11. Catholic Church Insurance Ltd 12. CGU Insurance Ltd 13. Chubb Insurance Company of Australia Ltd 14. Commonwealth Insurance Ltd 15. Credicorp Insurance Pty Ltd 16. Defence Service Homes Insurance Scheme 17. FM Insurance Company Ltd 18. Genworth Financial Mortgage Insurance Pty Ltd 19. Great Lakes Re-insurance (UK) PLC 20. Guild Insurance Ltd 21. Hallmark General Insurance Company Ltd 22. HBF Insurance Pty Ltd 23. Insurance Australia Ltd 24. Insurance Manufacturers of Australia Pty Ltd 25. LawCover Insurance Pty Ltd 26. Lloyd s Australia Ltd On 1 October 2012 Vero Insurance Ltd changed its name to AAI Limited. 19 On 1 July 2013 Australian Alliance Insurance Company Ltd, Australian Associated Motor Insurers Ltd, GIO General Ltd and Suncorp Metway Insurance Ltd ceased to carry on general insurance business in Australia and their general insurance businesses were transferred to AAI Limited. 20 Previously known as Chartis Australia Insurance Limited. 21 For participating cover holders and claims administrators see next section. 27. Medical Insurance Australia Pty Ltd 28. Mitsui Sumitomo Insurance Co Ltd 29. MTA Insurance Ltd 30. Mutual Community General Insurance Proprietary Ltd 31. NIPPONKOA Insurance Company Ltd 32. NTI Ltd 33. OnePath General Insurance Pty Ltd 34. Progressive Direct Insurance Pty Ltd 35. QBE Insurance (Australia) Ltd 36. QBE Lenders Mortgage Insurance Ltd 37. RAA Insurance Ltd 38. RAC Insurance Pty Ltd 39. RACQ Insurance Ltd 40. RACT Insurance Pty Ltd 41. Sompo Japan Insurance Inc 42. Southern Cross Benefits Ltd 43. St Andrew s Insurance (Australia) Pty Ltd 44. Sunderland Marine Mutual Insurance Company Ltd 45. Swann Insurance (Aust) Pty Ltd 46. Territory Insurance Office 47. The Hollard Insurance Company Pty Ltd 48. The Tokio Marine & Nichido Fire Insurance Co Ltd 49. Virginia Surety Company Inc 50. Wesfarmers General Insurance Ltd 51. Westpac General Insurance Ltd 52. XL Insurance Company Ltd 53. Youi Pty Ltd 54. Zurich Australian Insurance Ltd Page 44 of 55

45 Lloyd s Australia Ltd coverholders and claims administrators 55. AFA Pty Ltd 56. AIS Insurance Brokers Pty Ltd 57. Altiora Insurance Solutions Pty Ltd 58. AON Risk Services Australia Ltd 59. Arch Underwriting at Lloyd's (Australia) Pty Ltd 60. ASR Underwriting Agencies Pty Ltd 61. ATC Insurance Solutions Pty Ltd 62. Austagencies Pty Ltd 63. Australian Income Protection Pty Ltd 64. Australis Group (Underwriting) Pty Ltd 65. Austruck Insurance Pty Ltd 66. Axis Underwriting Services Pty Ltd 67. Beazley Underwriting Pty Ltd 68. Bizcover Pty Ltd 69. Brooklyn Underwriting Pty Ltd 70. Calliden Agency Services Limited Catlin Australia Pty Ltd 72. Cemac Pty Ltd 73. Cerberus Brokers Pty Ltd 74. Cerberus Special Risks Pty Ltd 75. Cheap Travel Insurance Pty Ltd 76. Cinesure Pty Ltd 77. CKA Risk Solutions Pty Ltd 78. Columbus Direct Travel Insurance Pty Ltd 79. Corporate Services Network 80. Coverforce Underwriting Pty Ltd 81. Crawford & Company (Australia) Pty Ltd 82. DCS Asia Pacific 83. DLA Piper Australia Dolphin Insurance Pty Ltd 85. Dual Australia Pty Ltd 22 Formerly Mansions of Australia Ltd. 23 Formerly DLA Philips Fox. 86. East West Insurance Brokers Pty Ltd 87. Echelon Australia Pty Ltd Edge Underwriting Pty Ltd 89. Elkington Bishop Molieaux Brokers Pty Ltd Epsilon Underwriting Agencies Pty Ltd 91. Fitton Insurance (Brokers) Australia Pty Ltd 92. Freeman McMurrick Pty Ltd 93. Gallagher Bassett Service Pty Ltd 94. Glenowar Pty Ltd Go Unlimited Pty Limited 96. Gow-Gates Insurance Brokers Pty Ltd 97. Guardian Underwriting Services Pty Ltd 98. High Street Underwriting Agency Pty Ltd 99. HQ Insurance Pty Limited 100. HW Wood Australia Pty Ltd 101. IBL Limited Indemnity Corporation Pty Ltd 103. Insurance Facilitators Pty Ltd 104. Ironshore Australia Pty Limited 105. Insurance Advisernet Australia Pty Ltd 106. Insure That Pty Ltd 107. isure Pty Ltd 108. Jardine Lloyd Thompson Pty Ltd 109. JMD Ross Insurance Brokers Pty Ltd 110. JUA Underwriting Agency Pty Ltd 111. Latitude Underwriting Pty Ltd 112. Lawsons Underwriting Australasia 113. Logan Livestock Insurance Agency Pty Ltd 25 Trading as EBM Insurance Brokers. 26 Trading as Fenton Green & Co.. 27 Trading as Planned Professional Risks Underwriting Agency London Australia Underwriting Pty Ltd 115. Magic Millions Insurance Brokers Pty Ltd 116. Manufactured Homes Insurance Agency Pty Ltd 117. Marsh Pty Ltd 118. Millennium Underwriting Agencies Pty Ltd 119. Miller & Associates Insurance Broking Pty Ltd 120. Miramar Underwriting Agency Pty Ltd 121. Mobius Underwriting Pty Ltd 122. National Underwriting Agencies Pty Ltd 123. Nautilus Marine Insurance Agency Pty Ltd 124. Newmarket Insurance Brokers Pty Ltd 125. Nova Underwriting Pty Ltd 126. Offshore Market Placements 127. Online Insurance Brokers Pty Ltd 128. Pacific Underwriting Corporation Pty Ltd 129. Panoptic Underwriting Pty Ltd 130. Parmia Pty Ltd 131. Pantaenius Australia Pty Ltd 132. PI Direct Insurance Brokers Pty Ltd 133. Proclaim Management Solutions Pty Ltd 134. Professional Risk Underwriting Pty Ltd 135. QBE QBE Placement Solutions Pty Ltd 137. Resource Underwriting Pacific Pty Ltd 138. Richard Oliver Underwriting Managers Pty Ltd 139. Savannah Insurance Agency Pty Ltd 140. SLE Worldwide Australia Pty Ltd 141. Specialist Underwriting Agencies Pty Ltd 142. Sportscover Australia Pty Ltd 143. SRS Underwriting Agency Pty Ltd 144. Starr Underwriting Agents (Asia) Ltd 145. Sterling Insurances Pty Ltd Page 45 of 55

46 146. Strathearn Insurance Brokers 147. SureSave Pty Ltd 148. Tasman Underwriting Pty Ltd 149. Transcorp Underwriting Agency Pty Ltd 150. Travel Insurance Direct Pty Ltd 151. Trident Insurance Group Pty Ltd 152. Trinity Pacific Underwriting Agencies Pty Ltd 153. Windsor Income Protection Pty Ltd 154. Winsure Insurance Group Pty Ltd 155. Woodina Underwriting Agency Pty Ltd 156. World Nomads Group Ltd Page 46 of 55

47 Appendix B: Aggregated breach data This appendix contains aggregated breach data reported to us as at 30 June for the period detailed by reference to the specific Code standards. The aggregated breach data is derived from two sources comprising: 1. Outcomes of our compliance monitoring activities during Outcomes of Code Participants monitoring activities during , identified through their internal breach reporting and monitoring programs, in accordance with their obligation to monitor their compliance with the Code. 28 Buying Insurance Code section FOS Code Participant Access information Correct error/mistake Conduct of sales process 3 1, (a) Reasons for declining insurance cover (b) Refer to another insurer/ica/niba Timeframe for premium refund Sales conduct Adequate training 1 25 Total 4 2,560 Catastrophes & Disasters Code section FOS Code Participant 4.3(a) Entitlement when claim finalised 1 4.3(b) Inform of complaints handling 1 Total 0 2 Continued on next page 28 The Code, section 7.2(a). The breach data excludes breaches and significant breaches identified by us, and significant breaches reported to us by Code Participants. Page 47 of 55

48 Insurance Claims Code section FOS Code Participant 3.1 Timeframe for making decision on simple claim and notifying customer of decision (a) Notify customer of required detailed information (b) Appoint loss assessor/adjuster (c) Initial estimate for claim decision Notify customer of appointment of loss assessor/adjuster/investigator Inform of claim progress 5 1, Respond to routine requests for information Make decision on claim and notify of decision Alternative timeframes with customer. Access to complaints handling procedures (a) Time limit accept/deny claim no exceptional circumstances (a) Right to lodge claim Claims handling fair, transparent and timely Correct error in dealing with claim (a) Written reasons to deny claim (b)(i) Right to information used to assess claim (b)(ii) Review decision to decline to release of information (c) Information about complaints handling (d) Request service provider &/or external expert reports Claims services honest, efficient, fair & transparent Adequate training Keep training records for five years & make available on request Notify financial institutions Comply with ACCC & ASIC Debt Collection Guidelines (a) Extend repayment period & reduce amount of each payment accordingly (b) Postpone payments (c) Extend repayment period & postpone payments for agreed period (a) Provide information about complaints handling procedures (b) Provide information about Financial Counselling Australia (a) Responsibility for workmanship & materials (b) Handle complaints about quality or timeliness of the work or conduct of repairer 2 Total 61 2,531 Continued on next page Page 48 of 55

49 Complaints Handling Code Code section FOS Participant Conduct of complaints handling Information about complaints handling procedures Take immediate action to correct error/mistake Timeframe for response to complaints Agree reasonable alternative timeframes Keep informed of progress of response to complaint Notify of response to complaint (a) Treat as dispute 3 6.6(c) Timeframe for response to dispute Alternative timeframes Informed on progress of dispute (a) Reasons for decision (b) How to access available EDR schemes (c) Notify of timeframe to register dispute with EDR scheme Unable to resolve complaint within 45 days inform of reasons for delay and right to refer to EDR Total 13 1, Page 49 of 55

50 Appendix C: Causes and corrective actions Causes Breaches reported by Code Breaches closed by FOS Code Participants via Annual Returns Causes Significant Standard Total Total Process not followed ,161 Documents not checked for compliance Administrative error Insufficient staff resources 4 4 1,333 Miscommunication Inadequate training No process 2 2 Inadequate process 1 1 Policy misinterpreted 1 1 System error or failure 1,530 Causes total ,185 Corrective actions Breaches reported by Code Breaches closed by FOS Code Participants via Annual Returns Corrective action Significant Standard Total Total Remedial training Inform customers and update documents Improve process &/or system & inform customers Remedial training & inform customers Increase staff resources 4 4 1,005 Increase staff resources & improve process &/or system 4 4 Remedial training & improve monitoring & improve process &/or system 119 Remedial training & improve process &/or system Improve process &/or system 2 2 1,294 Improve process &/or system & inform customers 2 2 1,517 Remedial training & improve monitoring Inform customers Improve monitoring Improve monitoring and improve process &/or system 19 Refund customers & improve process &/or system 1 1 Refund customers 84 Remedial training & refund affected customers Update documents/improve process &/or system &/or monitoring Apologise to and inform customers & increase staff resources 883 Corrective actions total ,185 Page 50 of 55

51 Appendix D: Policies, claims, declined claims & internal disputes data Conduct of Authorised Representatives Conduct of Employees Internal disputes Responding to Catastrophes & Disasters Total internal disputes Internal dispute outcomes in favour of Total dispute outcomes New Bus & Renewals Claims Declined Claims Buying Insurance Claims Other Code Participant Customer Grand total 39,266,304 3,770,454 98, ,828 25, ,894 22,318 9,359 31,677 Personal total 34,480,162 3,229,518 94, ,744 24, ,296 21,263 8,942 30,205 Commercial total 4,786, ,936 4, , ,598 1, ,472 Personal 1 Accident & Sickness 1,087,968 58,277 1, Consumer Credit 1,142,429 27,859 3, Home 10,678, ,472 42, ,909 8, ,106 8,507 3,615 12,122 Motor 13,291,046 1,713,573 7, ,282 11, ,305 10,020 4,296 14,316 Personal & Domestic Pty 2,933, ,356 18, Residential Strata 174,457 68, Travel 5,172, ,135 20, , ,093 1, ,075 Personal Total 34,480,162 3,229,518 94, ,744 24, ,296 21,263 8,942 30,205 Commercial 2 Business 1,939, ,842 2, Contractors All Risks 70,111 6, Farm 434,173 44, Industrial Special Risks 88,483 21, Liability 1,347,332 40, Motor 571, , Other 334,816 8, Commercial Total 4,786, ,936 4, , ,598 1, , Personal classes: Data previously reported under Home Building, Home Contents and Home Building & Contents is now reported under Home. Residential Strata was previously reported under Home Building. 2. Commercial classes: Aviation and Builders Warranty are now reported under Other. Page 51 of 55

52 Appendix E: Five-year overview of industry data These charts provide an overview of industry data reported to us over the last five reporting periods. While year on year data comparisons must be treated with caution (see Part 6.1) the data suggests that between 2008 and 2014 declined claims and internal dispute numbers have risen despite a downward trend in claim numbers. We consider that these developments should be examined by industry to identify underlying factors and implement remedial measures if needed. Industry five-year history Policies issued Claims lodged 39,500,000 3,900,000 39,000,000 39,007,318 39,266,304 3,850,000 3,866,164 3,865,984 38,500,000 38,000,000 3,800,000 3,810,513 37,500,000 3,750,000 3,770,454 37,000,000 36,500,000 36,371,082 36,643,881 37,186,220 3,700,000 3,650,000 36,000,000 35,500,000 3,600,000 3,623,255 35,000,000 3,550,000 34,500, ,500, Declined claims Internal disputes 120,000 35, ,000 97,118 30,000 31,894 80,000 60,000 72,833 67,671 66,296 98,920 25,000 20,000 21,447 22,581 23,285 28,875 15,000 40,000 10,000 20,000 5, Page 52 of 55

53 Appendix F: Monitoring Code compliance How we monitor Code compliance During the reporting year, we monitored compliance with the Code in association with the General Insurance Code Compliance Committee (the Committee), which comprises an independent Chair, a consumer representative and an industry representative. The Committee is independent of the general insurance industry and has powers and functions to identify and address breaches of Code obligations. Together we ensure the Code is monitored effectively. Our annual compliance monitoring program Our annual Code compliance monitoring program is based on a three-year cycle and consists of three key initiatives: Desktop reviews, self-assessed compliance statements and an Annual Return. Code Participants take part in a Desktop audit once every three years and self assess and certify compliance with the Code in the other two-year period. Annual Returns are expected from each Code Participant every year. The program promotes: Internal self-assessment and review of Code compliance by the Code Participant with clear oversight by the Chief Executive Officer or Chair of the Board. Independent verification by the FOS Code Team and the Committee of the monitoring and reporting activity by Code Participants. The program helps the FOS Code Team and the Committee to: form a view about the overall level of industry compliance assess the adequacy of Code compliance frameworks, and identify and report on emerging areas of compliance risk. Our investigations function We monitor Code compliance by investigating reports of alleged Code breaches 29 from a variety of sources, including consumers and FOS s external dispute resolution scheme. We also receive reports of significant Code breaches from Code Participants in accordance with their selfreporting obligation 30. Investigating alleged breaches of the Code When we receive an allegation that the Code may have been breached, we contact the relevant Code Participant and provide it with an opportunity to respond to the breach allegations. 31 Further enquiries may follow after examining the Code Participant s initial response. We decide whether a breach of the Code has occurred after we have evaluated all relevant information. 32 If we conclude that the Code has been breached, we ask the Code Participant to implement appropriate corrective action in response to the breach within an agreed timeframe and then we monitor its implementation. 33 (See Diagram 3.) If a Code Participant concludes that it has complied with the Code s requirements during an investigation, we ask it to explain the basis of its conclusion and provide supporting evidence. For 29 The Code, section The Code, section The Code, section 7.11(a) (c). 32 The Code, section 7.11(d). 33 The Code, section 7.11(e). Page 53 of 55

54 example, if a Code Participant advises that it has met the claims handling standards, we expect it to provide supporting evidence such as copies of its file notes and/or a chronology of its dealings with the customer. Diagram 3: Breach cause, impact, scope and corrective action Step 1: Determine cause, impact and scope of breach What was the cause and duration of the breach? What was the impact of the breach, including the extent and nature of any consumer detriment, and how was that determined? Is the breach isolated? Have all affected consumers been identified? Have similar breaches occurred previously? Have all compliance gaps been identified? Are existing compliance arrangements adequate? Step 2: Agree on corrective action and monitor implementation What is the nature of the proposed corrective action? Does it address the cause of the breach? Does it address the breach's impact, including consumer detriment? What is the timeframe for implementation and is it reasonable? Have the corrective actions been implemented? Have the corrective actions resolved the issue and reduced the likelihood of a recurrence? Investigating significant breaches of the Code Code Participants are required to monitor their compliance with the Code and identify and report significant Code breaches to us within 10 business days. 34. The Code defines significant breach as a breach that is determined to be significant by reference to one or more of the following factors: the number of similar previous breaches the adequacy of arrangements to ensure compliance with the Code the extent of any consumer detriment, and the duration of the breach. We investigate significant breaches to determine their causes, impact and scope, and monitor the Code Participant s actions to remedy the breach. We also assess whether the proposed corrective action is appropriate, including whether it addresses consumer detriment. In addition to reports of significant Code breaches received from Code Participants, we may independently determine that a matter under investigation is a significant breach of the Code. We have an obligation to report all significant breaches and agreed corrective action to the Committee The Code, Section 7.3 and Section The Code, section 7.12(a). Page 54 of 55