General Insurance Code of Practice

Transcription

1 General Insurance Code of Practice Overview of the Year February of 62 General Insurance Code of Practice Overview of the Year 2010/2011

2 Contents 1 About the Code 4 2 Our obligation to report on Code compliance 5 3 Current Participating Companies General Insurers Lloyd s Australia Limited Coverholders and Third Party Administrators 7 4 The year at a glance 9 5 Thanks 10 6 Monitoring Code compliance How we monitor Code compliance Annual reviews of participating companies Code compliance Investigating alleged Code breaches Reports of significant Code breaches How we respond to Code breaches Breach outcomes Breaches identified by FOS Sources of Code breaches Geographical distribution of breaches Causes of breaches Corrective actions in response to breaches Significant breaches of the Code Code breaches identified by participating companies 31 7 New and Renewed Policies, Claims, Declined Claims and Internal Dispute Resolution Data All Classes of General Insurance New and Renewed Policies 39 2 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

3 7.1.1 All classes Personal classes Commercial classes All Classes of General Insurance - Claims and Declined Claims Data All classes - Claims All classes Declined claims All Classes of General Insurance - Internal Dispute Resolution Data Internal Dispute Resolution and the Code All classes - Disputes received by participating companies All classes - Disputes resolved through IDR by participating companies All Classes Non-Claims Disputes and Claims Disputes in 2009/2010 and 2010/ Appendices Personal Classes Disputes received by participating companies in 2010/ Personal Classes Outcomes of internal disputes in 2010/ Commercial classes - Disputes received by participating companies in 2010/ Commercial Classes Outcome of Internal Disputes in 2010/ Appendix A: All Classes of General Insurance - New and Renewed Policies, Claims, Declined Claims, Internal Disputes and Outcomes in Appendix B: Personal Classes of General Insurance - New and Renewed Policies, Claims, Declined Claims, Internal Disputes and Outcomes in Appendix C: Commercial Classes of General Insurance - New and Renewed Policies, Claims, Declined Claims, Internal Disputes and Outcomes in Appendix D: Amendments to Data for 2009/ of 62 General Insurance Code of Practice Overview of the Year 2010/2011

4 1 About the Code The Insurance Council of Australia (Insurance Council) is responsible for the General Insurance Code of Practice (the Code), which it initially released on 18 July The Code covers all general insurance products except workers compensation, marine insurance, medical indemnity insurance 1, compulsory third party insurance, reinsurance, and life and health insurance products issued by life insurers or registered health insurers 2. The current version of the Code became effective on 1 May 2010 and is available for download from The Code prescribes the minimum standards each participating company is required to uphold when providing services to individuals and businesses seeking or holding an insurance policy, and in some circumstances to third parties. The Code s standards apply to participating companies Employees and to their Authorised Representatives 3 and Service Providers 4 when acting on their behalf and cover: Enquiries about insurance, buying, selling and renewal of insurance cover. Insurance claims including financial hardship experienced by individuals, businesses and third parties and the response to catastrophes and disasters. Information and education. Complaints handling procedures. The Code operates together with many laws that govern the general insurance industry and its objectives are to: Promote good relations between insurers and their customers and improve consumer confidence in the general insurance industry. Provide better mechanisms for the resolution of complaints and disputes between insurers and their customers, and Commit insurers and the professionals they rely on to higher standards of customer service. 5 1 Medical Insurance Australia Pty Ltd, a medical indemnity insurer, has voluntarily adopted the Code. 2 The General Insurance Code of Practice Sections 1.4 and Authorised Representative is an individual/company who is not a participating company s employee but is authorised by it to provide financial services under its Australian Financial Services licence. 4 Service Provider is an investigator, loss assessor/loss adjuster, collection agent, claims manager (including a broker who manages claims for an insurer) or its approved sub-contractors. 5 The General Insurance Code of Practice Section of 62 General Insurance Code of Practice Overview of the Year 2010/2011

5 2 Our obligation to report on Code compliance The Code identifies the Financial Ombudsman Service Limited (FOS) as the body responsible for monitoring participating companies compliance with the Code. Our monitoring obligations include the requirement to release an annual public report containing aggregated industry data and consolidated analysis on compliance in accordance with section 7.8 of the Code. This report is our annual public report for the year 1 July 2010 to 30 June 2011 (2010/2011) and is based on data collected from 147 participating companies throughout Australia. We have drawn our observations from: Outcomes of annual Code compliance reviews and investigations of Code breach allegations. Reports of Code breaches, including significant breaches, provided by participating companies. Data provided by participating companies across all classes of general insurance 6 business captured by the Code about internal dispute resolution (IDR) and outcomes, new and renewed policies, claims and declined claims. Other information provided by participating companies about their monitoring processes. One hundred and fifty-one companies throughout Australia currently subscribe to the Code voluntarily, consisting of 60 general insurers and 91 Lloyd s Australia Limited Coverholders and Third Party Administrators. These companies are listed below in Current Participating Companies, pages of 62 General Insurance Code of Practice Overview of the Year 2010/2011

6 3 Current Participating Companies 3.1 General Insurers 1. ACE Insurance Limited 2. AIOI Insurance Co Ltd 3. Allianz Australia Insurance Limited 4. Ansvar Insurance limited 5. Assetinsure Pty Ltd 6. Australian Alliance Insurance Company Limited 7. Australian Associated Motor Insurers Limited 8. Auto & General Insurance Company Limited 9. AVEA Insurance Limited 10. Calliden Insurance Limited 11. Catholic Church Insurance Limited 12. CGU Insurance Limited 13. Chartis Australia Insurance Limited 14. Chubb Insurance Company of Australia Limited 15. Combined Insurance Company of Australia Commonwealth Insurance Limited 17. Credicorp Insurance Pty Ltd 18. Cumis Insurance Society Inc 19. Defence Service Homes Insurance Scheme 20. Elders Insurance Limited 21. FM Insurance Company Limited 22. Genworth Financial Mortgage Insurance Pty Ltd 23. GIO General Limited 24. Great Lakes Re-insurance (UK) PLC 25. Guild Insurance Limited 26. Hallmark General Insurance Company Limited 7 A division of ACE Insurance Limited. 6 of 62 General Insurance Code of Practice Overview of the Year 2010/ HBF Insurance Pty Ltd 28. Insurance Australia Limited 29. Insurance Manufacturers of Australia Pty Limited 30. LawCover Insurance Pty Limited 31. Lloyd's Australia Limited Medical Insurance Australia Pty Ltd 33. Mitsui Sumitomo Insurance Co Ltd 34. MTA Insurance Limited 35. Mutual Community General Insurance Proprietary Limited 36. Nipponkoa Insurance Company Ltd 37. NTI Limited 38. OnePath General Insurance Pty Limited 39. QBE Insurance (Australia) Limited 40. QBE Lenders' Mortgage Insurance Ltd 41. RAA Insurance Limited 42. RAC Insurance Pty Limited 43. RACQ Insurance Limited 44. RACT Insurance Pty Ltd 45. Sompo Japan Insurance Inc 46. Southern Cross Benefits Ltd 47. St Andrew s Insurance (Australia) Pty Ltd 48. Suncorp Metway Insurance Limited 49. Sunderland Marine Mutual Insurance Company Limited 50. Swann Insurance (Aust) Pty Ltd 51. Territory Insurance Office 8 See below Lloyd s Australia Limited Coverholders and Third Party Administrators

7 52. The Hollard Insurance Company Pty Ltd 53. The Tokio Marine & Nichido Fire Insurance Co Ltd 54. Vero Insurance Limited 55. Virginia Surety Company Inc 56. Wesfarmers General Insurance Limited 57. Westpac General Insurance Ltd 58. XL Insurance Company Ltd 59. Youi Pty Ltd 60. Zurich Australian Insurance Ltd 3.2 Lloyd s Australia Limited Coverholders and Third Party Administrators 1. AFA Pty Ltd 2. Affinity Risk Partners (Brokers) Pty Ltd 3. AIS Insurance Brokers Pty Ltd 4. Altiora Insurance Solutions Pty Ltd 5. AON Risk Services Australia Ltd 6. Arch Underwriting at Lloyd's (Australia) Pty Ltd 7. ASR Underwriting Agencies Pty Ltd 8. ATC Insurance Solutions Pty Ltd 9. Aurora Underwriting Agency Pty Ltd 10. Austagencies Pty Ltd 11. Austbrokers RWA Pty Ltd 12. Austbrokers Sydney Pty Ltd 13. Australian Income Protection Pty Ltd 14. Australis Group (Underwriting) Pty Ltd 15. Austruck Insurance Pty Ltd 16. Axis Underwriting Services Pty Ltd 17. Beazley Underwriting Pty Ltd 18. Bizcover Pty Ltd 19. Brooklyn Underwriting Pty Ltd 20. Catlin Australia Pty Ltd 21. Celestial Underwriting Agency Pty Ltd 22. Cerberos Brokers Pty Ltd 23. Cerberus Special Risks Pty Ltd 24. CKA Risk Solutions Pty Ltd 25. ClaimsActive Pty Ltd 26. Columbus Direct Travel Insurance Pty Ltd 27. Corporate Services Network 28. Coverforce Underwriting Pty Ltd 29. Crawford & Company (Australia) Pty Ltd 30. Cunningham Lindsey Australia Pty Ltd 31. DCS Asia Pacific 32. DLA Phillips Fox 33. Dolphin Insurance Pty Ltd 34. Dual Australia Pty Ltd 35. Echelon Australia Pty Ltd (trading as Echelon Claims Services) 36. Elkington Bishop Molineaux Insurance Brokers Pty Ltd (also known as EBM Insurance Brokers) 37. Epsilon Underwriting Agencies Pty Ltd 38. Fenton Green & Co 39. Fitton Insurance (Brokers) Australia Pty Ltd 40. Freeman McMurrick Pty Ltd 41. Gallagher Bassett Service Pty Ltd 42. Gow-Gates Insurance Brokers Pty Ltd 43. Guardian Underwriting Services Pty Ltd 44. High Street Underwriting Agency Pty Ltd 45. Horsell International Pty Ltd 46. HW Wood Australia Pty Ltd 47. Indemnity Corporation Pty Ltd 7 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

8 48. Insurance Advisernet Australia Pty Ltd 49. Insure That Pty Ltd 50. International Underwriting Services Pty Ltd 51. Jardine Lloyd Thompson Pty Ltd 52. JMD Ross Insurance Brokers Pty Ltd 53. JUA Underwriting Agency Pty Ltd 54. Logan Livestock Insurance Agency Pty Ltd 55. London Australia Underwriting Pty Ltd 56. Magic Millions Insurance Brokers Pty Ltd 57. Mansions of Australia Ltd 58. Manufactured Homes Insurance Agency Pty Ltd 59. Marsh McLennan Pty Ltd 60. Midas Insurance Brokers Pty Ltd 61. Millennium Underwriting Agencies Pty Ltd 62. Miller & Associates Insurance Broking Pty Ltd 63. Miramar Underwriting Agency Pty Ltd 64. National Underwriting Agencies Pty Ltd 65. Nautilus Marine Insurance Agency Pty Ltd 66. Newmarket Insurance Brokers Pty Ltd 67. Nova Underwriting Pty Ltd 68. Online Insurance Brokers Pty Ltd 69. Pacific Underwriting Corporation Pty Ltd 70. Parmia Pty Ltd 71. PI Direct Insurance Brokers Pty Ltd 72. Planned Professional Risks Underwriting Agency 73. Proclaim Management Solutions Pty Ltd 74. Professional Risk Underwriting Pty Ltd 75. QBE QBE Placement Solutions Pty Ltd 77. Resource Underwriting Pacific Pty Ltd 78. Richard Oliver Underwriting Managers Pty Ltd 79. Savannah Insurance Agency Pty Ltd 80. SLE Worldwide Australia Pty Ltd 81. Sportscover Australia Pty Ltd 82. SRS Underwriting Agency Pty Ltd 83. Starr Underwriting Agents (Asia) Limited 84. Steley C.A.P (trading name for Claim Adjustment Partner Pty Ltd) 85. Sterling Insurances Pty Ltd 86. Tasman Underwriting Pty Ltd 87. Trafalgar Risk Management Pty Ltd 88. Transcorp Underwriting Agency Pty Ltd 89. Trident Insurance Group Pty Ltd 90. Trinity Pacific Underwriting Agencies Pty Ltd 91. Winsure Insurance Group Pty Ltd 8 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

9 4 The year at a glance Australians experienced another significant period of extreme weather events which sadly led to loss of life and damage to properties and infrastructure, particularly in Queensland. These events consisted of 9 : Flooding in Queensland between 21 December 2010 and 14 January 2011, affecting Brisbane, Toowoomba, Lockyer Valley and rural Queensland. Flooding in Victoria between 13 January 2011 to 18 January Cyclone Yasi in Queensland between 2 February 2011 to 7 February Severe storms in Victoria between 4 February 2011 and 6 February 2011, affecting Melbourne and surrounding suburbs. Bushfires in Western Australia between 5 February 2011 and 7 February 2011, affecting Perth and surrounding suburbs. Individuals and businesses (customers): Acquired 37,186,220 general insurance policies, lodged 3,810,513 claims, and raised 23,285 internal disputes. Participating companies: Internally resolved 7,146 disputes in favour of customers and 15,527 disputes in their favour. Declined liability for 66,296 claims. Employed 35,711 people, engaged the services of 5,853 Corporate Authorised Representatives and 12,083 individual Authorised Representatives and provided Code training 10 to 29, employees and 15, Authorised Representatives. 9 Source: Insurance Council of Australia: 10 The Code requires participating companies to provide training about the Code to those Employees and Authorised involved in the selling of general insurance products, handling insurance claims including third parties recoveries, and complaints handling. 11 It is difficult to be accurate about Employee and Authorised Representative numbers, as the numbers do not necessarily take account of casual or temporary staff, and fluctuations in data may also occur due to individuals being on extended leave. As a result, the figures provided here can only be regarded as approximate. 12 See footnote 8 above. 9 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

10 5 Thanks Numerous challenges faced the general insurance industry and the demands on the participating companies extended into federal inquiries into the floods and disasters, the Queensland Flood Commission and unprecedented media scrutiny. Despite the challenges confronting participating companies during 2010/2011, they worked cooperatively with us. We extend our thanks to all participating companies for their assistance and cooperation during this difficult period. John Price, Ombudsman - General Insurance 10 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

11 6 Monitoring Code compliance 6.1 How we monitor Code compliance We monitor participating companies compliance with the Code by: Annually reviewing compliance 13. Investigating reports of alleged breaches 14 received externally and from our staff and Ombudsmen 15 (decision-makers). Investigating significant breaches identified and reported to us by participating companies 16. The way in which we do this is discussed below Annual reviews of participating companies Code compliance During July 2010 we varied our method for annually reviewing Code compliance, essentially by moving the site of the review process from the participating company s premises to our premises. While a participating company continues to provide us with an annual compliance statement, it also provides us with evidence supporting its responses for our examination and verification. Evidence of a participating company s procedures, processes and systems underlying its compliance statement may be provided to us in a variety of formats, including hard copy and/or electronic formats. 13 General Insurance Code of Practice: Section General Insurance Code of Practice: Section FOS Terms of Reference January 2010 defines Ombudsman as a person appointed to the position of Ombudsman under paragraph 12 of FOS s constitution and includes the Chief Ombudsman. 16 General Insurance Code of Practice: Section 7.3 and Section of 62 General Insurance Code of Practice Overview of the Year 2010/2011

12 6.1.2 Investigating alleged Code breaches We receive reports of alleged breaches largely from our staff and Ombudsmen but also from external sources such as community legal centres. We contact the relevant participating company about the alleged breach and provide it with an opportunity to respond to the allegations. Further enquiries may follow after examining the participating company s initial response. A decision about whether a breach of the Code has occurred is made after all relevant information has been evaluated. If we conclude that a breach has occurred, we ask the participating company to implement appropriate corrective action in response to the breach within an agreed timeframe and monitor completion Reports of significant Code breaches Participating companies are required to monitor their compliance with the Code and identify and report significant Code breaches to us within 10 business days. We investigate significant breaches to determine their scope and causes and monitor the participating company s implementation of corrective action in response to the significant breach. We also assess whether the proposed corrective action is appropriate, including whether it addresses consumer detriment How we respond to Code breaches We maintain a consistent approach to identified Code breaches as follows: 1. Once satisfied that a participating company has failed to comply with the Code s service standards, steps are taken to: 1. Identify the cause of the failure. 2. Determine the duration of the failure. 3. Determine whether similar failures had occurred previously. 4. Assess the adequacy of existing compliance arrangements. 5. Determine whether there were any consumers disadvantaged as a result of the failure. 6. Liaise with the participating company to determine the nature of the action required to address the non-compliance. 12 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

13 7. Monitor the participating company s progress to ensure corrective measures are implemented within agreed timeframes. 8. Ensure the participating company delivers appropriate training to Employees, Authorised Representatives and/or Service Providers, if required. 2. In order to determine whether corrective action implemented by a participating company is adequate, we ask it to: 1. Describe what action was taken. 2. Provide appropriate documentary material supporting the action. For example, by providing extracts from its claims handling manual, its IDR register or its training records. 3. Consider and comment on whether the breach was an isolated instance or is occurring more widely within its business. This is an important step because: The issue under investigation may amount to a significant breach of the Code (as defined by the Code). There may have been consumers disadvantaged by the non-compliance and the participating company would be required to address this. There may be an issue concerning the adequacy of training provided to Employees and/or Authorised Representatives, or the suitability of procedures employed by Service Providers. 3. If a participating company concludes the matter is isolated, then it is expected to explain how it determined this. For example, a participating company may have conducted a review of claim files during the duration of the breach to determine whether any other consumers may have been affected. 4. Similarly, when a participating company asserts that it has complied with the Code s requirements in response to our enquiries, it is asked to: 1. Explain the basis of its conclusion. 2. Provide appropriate evidence in support of its conclusions. 13 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

14 For example, if a participating company advises that it has met the claims handling standards, it should provide copies of its file notes and/or telephone logs, together with a chronology of its dealings with the consumer, in support of its conclusion. 6.2 Breach outcomes The following discussion about Code breaches for 2010/2011 covers three areas: Code breaches identified by us through our annual reviews of compliance and investigations of alleged Code breaches Significant breaches of the Code identified and reported by participating companies to us, and Other Code breaches identified and reported to us by participating companies Breaches identified by FOS See Chart 1 and Chart 2 below (at pages 17 and 18) Number and types of breaches We identified 108 Code breaches in 2010/2011, involving 28 participating companies and found eight of these had breached the Code at least five times during 2010/2011. The breaches were identified through our investigations of alleged Code breaches and annual Code compliance reviews. Each participating company implemented agreed corrective measures within an agreed timeframe in response to the breaches. The breaches consisted of: Section 2 Buying insurance: six breaches Section 3 Insurance claims: 49 breaches Section 4 Responding to catastrophes and disasters: six breaches, and Section 6 Complaints handling procedures: 47 breaches. 14 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

15 We recorded five or more breaches of: 1. Section breaches: The following standards apply to all claims. 1. We will conduct claims handling in a fair, transparent and timely manner Section breaches: The following standards apply to the handling of claims by our Employees and Service Providers. 1. Our Employees and our Service Providers will conduct their services in an honest, efficient, fair and transparent manner; Section breaches: The following standards apply to all complaints handling. We will conduct complaints handling in a fair, transparent and timely manner... 4 Section 6.9(c) - nine breaches: We will respond to your dispute in writing giving:... c) notify you of the timeframe within which you must register your dispute with the external dispute resolution scheme. 15 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

16 Outcomes of annual Code compliance reviews Annual Code compliance reviews in 2010/2011 focused on participating companies that are general insurers and did not include Lloyd s Australia Limited s Coverholders and Third Party Administrators. We finalised compliance reviews for 57 participating companies with the following results: 42 (82%) participating companies had procedures, processes and systems in place which facilitated their compliance with the Code. 15 (18%) participating companies had procedures, processes or systems that did not comply with the Code and of these: One participating company was reviewed for the first time Six participating companies were assessed as Code compliant during the previous year, 2010/2011, and Eight participating companies did not comply with the Code when reviewed during 2010/2011. Section 6.9(c) was the most frequently breached section identified through compliance reviews. Each participating company implemented measures within an agreed timeframe to address the areas identified by us. Note that throughout this paper percentages have been rounded up/down to the nearest whole number and 0% means that the proportion of data represents less than 1%.. 16 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

17 Chart 1: Breaches by Code category identified by FOS in st Qtr 2nd Qtr rd Qtr 4th Qtr Grand Total 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 Grand Total 17 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

18 Chart 2: Breaches by Code section identified by FOS in of 62 General Insurance Code of Practice Overview of the Year 2010/2011

19 Case Studies: Case Study 1: The policyholder lodged a claim under a policy for damage to insured property but withdrew the claim after the participating company appointed a repairer to temporarily repair the damage. The participating company asked the policyholder to pay the policy excess to cover its repair costs but he disputed this for a number of reasons including that the repairer had not made any repairs. At the conclusion of our investigation, we notified the participating company that it had breached section of the Code because the handling of the claim lacked fairness and transparency. We were satisfied that: When the participating company asked the policyholder to pay the policy excess, it was unclear whether the repairer had carried out any repairs to the damaged property. The participating company did not query whether repairs had been carried out until after the policyholder complained to it. It was later established that the repairer had not made any repairs and the costs reflected the repairer s time is assessing and investigating the damage. The participating company acknowledged that if such costs were for assessment and investigation of damage, it would be inappropriate to ask the policyholder to pay the excess or the actual costs (if less than the excess). It addressed the breach of section in several ways, including by: Amending its processes to ensure that it would clearly inform customers of the requirement to pay the policy excess or the cost of temporary repairs, if the claim was withdrawn after temporary repairs were made. Conducting investigations to determine whether any other policyholders may have been similarly affected. Case Study 2: The policyholders had lodged a claim under a policy for loss of insured property. After an extended period, the participating company had failed to decide whether it would accept or deny the claim. 19 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

20 At the conclusion of our investigation, we were satisfied that the participating company had breached sections 3.2.3, and of the Code because: The policyholders first complained about the delays several months after lodging the claim. At that time, the participating company informed the policyholders that its investigations were continuing and it was unable to determine whether it should accept the claim. Several months later, the participating company informed the policyholders it had declined their claim and that it would confirm this in writing. However, the participating company subsequently informed the policyholders that it was unable to provide written confirmation of its decision and that it was seeking legal advice. The participating company was advised to conduct additional enquiries. The participating company acknowledged that: There were delays in the processing of the claim and its initial decision to deny the claim and inform the policyholders was premature in light of the legal advice it later obtained. It did not proactively update the policyholders about the status of their claim. This was identified as an isolated occurrence due to a failure by claims staff to adhere to established internal policies and procedures. The participating company provided feedback to relevant staff and reiterated the importance of adherence to procedures. Case Study 3: The policyholders lodged a claim for damage to insured property, which was declined by the participating company because the policy did not cover the cause of the damage. When the policyholders disputed the decision to decline the claim, the participating company stated in its IDR response that the policyholders had misled it about the circumstances of the claim, but it also said that it had declined the claim for other reasons. We concluded that the participating company had handled the dispute unfairly in these circumstances, and as a result had breached section The participating company addressed this matter by: 1. Providing remedial training to IDR staff. 2. Reviewing other IDR responses to ensure that they had been handled fairly. 20 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

21 3. Reviewing the policyholders policy and claims records to ensure there was no reference to the policyholders misleading it about the circumstances of the claim. Case Study 4: We concluded that the participating company in this matter had failed to comply with section because it did not complete an internal review of a third party s dispute about the repayment of an alleged debt, in a timely manner. The participating company conceded that the IDR delay occurred due to a miscommunication between itself, its collection agent and its legal representative. As a result, neither the collection agent nor the legal representative had referred the dispute to the participating company for internal review, delaying the commencement of the IDR process. The participating company addressed this matter by: Reviewing a sample of files to determine whether this instance was isolated. Providing feedback about this matter to the collection agent and legal representative. Incorporating a quarterly review of the collection agent s files. Implementing an improved process to ensure that such disputes are referred to the participating company for IDR without delay. Case Study 5: The policyholder had lodged a claim for damage to insured property. The participating company determined that the policyholder was responsible for the damage and applied the policy s standard excess to the claim. It also decided that some of the damage to the insured property was not covered by the policy and asked the policyholder to contribute a proportion of the repair costs. The policyholder disputed the participating company s decision and also complained that it had not kept him informed about the progress of his claim and had not provided him with information about its complaints handling procedures. 21 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

22 We concluded that the participating company had not complied with sections 3.4.1, 6.1.1, 6.2 and 6.6(c) of the Code because it: Did not assess the damaged property until two months after the claim had been lodged, despite a number of calls from the policyholder about his claim. Did not ask the policyholder to consent to an extended IDR timeframe. Although the policyholder had complained in detail to claims staff, they failed to record this information and requested him to put both of his complaints in writing. As a result, the commencement of the IDR process was delayed. Had completed the IDR process for one complaint within the required 45 day timeframe but delayed issuing its written IDR response. Later realised that it had overlooked reviewing the other complaint. As a result, the IDR process for the second complaint was completed outside of 45 days. The participating company addressed these issues by: Providing remedial training to IDR staff. Reviewing disputes to ensure the IDR process was being completed within 45 days. Monitoring the process for damage assessment to ensure this was occurring in a timely manner. Case Study 6: We were satisfied that a number of participating companies had breached section 6.9(c) because they had: Failed to notify customers that they were required to lodge their disputes with FOS within two years of the date of the IDR response. Alternatively, incorrectly informed customers that they were required to lodge their disputes with FOS within three months of receiving the IDR response. These breaches occurred because the participating companies failed to review and update relevant documentation and procedures to ensure continued compliance with the new FOS Terms of Reference released on 1 January of 62 General Insurance Code of Practice Overview of the Year 2010/2011

23 Remedial action consisted of: Identifying customers who had received incorrect information about the timeframe for lodging a dispute with FOS. Notifying affected customers about the timeframe applicable to the lodgement of a dispute with FOS. Amending template IDR response letters to include the correct information. Amending procedures to include the requirement to notify customers about the timeframe applicable to the lodgement of a dispute with FOS (where FOS is applicable). Informing relevant staff of the requirements and the changes that had been made Sources of Code breaches See Chart 3 below (at page 24). Sixty-eight percent of Code breaches arose from reports of alleged Code breaches by FOS decision-makers and staff consisting of: FOS staff - 41 breaches (38%), and FOS Ombudsmen (described as FOS decision-makers in Chart C) 32 breaches (30%). Followed by breaches identified through annual Code compliance reviews 16 breaches (15%). Other breach sources consisted of: Community legal centres - 10 breaches (9%) Customers/Representatives - seven breaches (6%), and Participating companies - two breaches (2%). 23 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

24 Chart 3: Sources of breaches in Qtr 1 Qtr 2 Qtr 3 Qtr 4 Grand Total Code Review Customer Customer Representative FOS Decision Maker FOS Staff Member Legal Centre Code Participant Grand Total 24 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

25 6.2.3 Geographical distribution of breaches We have described the geographical location of Code breaches throughout Australia with reference to the: State or Territory in which a participating company s head office is located for annual Code compliance reviews. State or Territory in which a consumer resided at the time of the breach - for breaches identified through investigations of alleged Code breaches. Chart 4 (page 26), shows the number of breaches connected with a participating company or consumer by reference to location: 42 breaches (39%) in New South Wales. 33 breaches (30%) in Victoria. 14 breaches (13%) in Queensland. 7 breaches (6%) in Western Australia. 6 breaches (6%) in South Australia. 4 breaches (4%) in Tasmania and. 2 breaches (2%) in Northern Territory. 25 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

26 Chart 4: Geographical distribution of breaches in Qtr 1 Qtr 2 Qtr 3 Qtr 4 Grand Total ACT NSW NT QLD SA TAS VIC WA Grand Total 26 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

27 6.2.4 Causes of breaches The leading cause of breaches in 2010/2011 was a failure to adhere to processes, resulting in 53 breaches and representing 49% of all breaches. Other causes of breaches during the year were: Administrative error 10 breaches (9%), and Incorrect processes - 10 breaches (9%). See Chart 5 (page 28) below Corrective actions in response to breaches Participating companies responded to breaches in various ways. The most frequently utilised corrective action was remedial training in response to 42 breaches (39%), followed by process improvement in response to 22 breaches (20%). Remedial training was also incorporated into a combined corrective response for a further six breaches (5%). See Chart 6 (page 29) below. 27 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

28 Chart 5: Causes of breaches in Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Administrative error Inaccurate IDR letter Inadequate staff resources & process not followed Insufficient staff resources Misinterpretation of reports Policy misinterpreted Training not provided of 62 General Insurance Code of Practice Overview of the Year 2010/2011

29 Chart 6: Corrective actions in 2010/2011 Grand Total Update documents, process improvement & corrective information to affected customers Update documents & process improvement Update documents Training provided; training programme modified; and monitoring implemented Total Qtr 4 Qtr 3 Qtr 2 Qtr 1 Training provided 1 System improvement 1 Remedial training & indemnify affected customer(s) 1 Remedial training & corrective information to affected customers 4 2 Remedial training & process improvement 1 Remedial training Refund to customers and process improvement Process introduced Process improvement No corrective action, isolated incident Increased staff resources & process improvement 1 Increased staff resources of 62 General Insurance Code of Practice Overview of the Year 2010/2011

30 6.2.6 Significant breaches of the Code Section 7.3 of the Code requires participating companies to report an identified significant breach of the Code to us within 10 business days. The Code defines a significant breach as:... a breach that is determined to be significant by reference to: a) similar previous breaches; b) the adequacy of [the participating company s] arrangements to ensure compliance with this Code; c) the extent of any consumer detriment; and d) the duration of the breach. We are required to report a significant breach, including a participating company s agreed corrective action, to the Code Compliance Committee 17. During 2010/2011 we received one report of a significant breach of the Code from a participating company, in relation to section of the Code which provides as follows: 3.4. The following standards apply to all claims. 1. We will conduct claims handling in a fair, transparent and timely manner... The significant breach report resulted from our investigation of an issue identified by an Ombudsman when determining a dispute. The issue in dispute was whether the participating company s assessment of the value of the policyholder s loss was accurate. The Ombudsman determined that the participating company s valuation was too low, due to the omission of an item that was covered by the policy. At the conclusion of our investigation we informed the participating company that it had breached section of the Code on the basis that the omission was unfair to its customers. The participating company subsequently reported this matter to us as a significant breach of the Code for a number of reasons including that: Other policies included an allowance for this item when determining the value of an insured loss. 17 Section 7.12 of the Code provides: FOS will report to the Code Compliance Committee on: a) a significant breach of this Code including our agreed corrective action of 62 General Insurance Code of Practice Overview of the Year 2010/2011

31 There was a widespread and long-standing practice of omitting this item when determining the value of an insured loss. Current and past customers had sustained a financial loss as a result of the practice. In response to the significant breach the participating company implemented a number of corrective actions including the following: Instructing all claims staff to settle such claims in accordance with the terms of the policy, including making an allowance for this item where the policy provided for it. Reviewing past payments to customers to identify other customers affected by the significant breach, notifying them about the omission, and paying the outstanding amount, together with interest in accordance with section 57 of the Insurance Contracts Act Code breaches identified by participating companies See Chart 7 and Chart 8 below (pages 34 and 35). Section 7.2 of the Code requires each participating company to have: Appropriate systems and processes in place to enable it to monitor its own compliance with the Code, and A governance process in place to independently and periodically report on their compliance with the Code to their Board of Directors or Executive Management. The requirement to self-monitor compliance extends to a participating company s authorised representatives and/or service providers, where they are utilised. They may monitor compliance with the Code through a number of mechanisms including: Customer feedback through surveys and complaints. Monitoring of complaints and disputes to ensure they are handled appropriately. Analysis of Code related complaints and disputes to identify systemic issues and/or significant trends in Code breaches. Review and investigation of internal processes and/or procedures identified in allegations of Code breaches and compliance incidents identified by FOS. 31 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

32 Independent internal audits and monitoring, including audits of closed and open files, carried out by a participating company s risk and compliance specialists. Independent audits conducted by external auditors. Internal audits and monitoring carried out by the relevant business area within a participating company. Monitoring of performance of authorised representatives and/or service providers through audits and customer feedback (including complaints). Monitoring of frontline sales and claims operations through call monitoring and coaching. Use of due diligence reporting tools to monitor and report on issues, breaches, suspected breaches and non-compliance. Embedding Code compliance within procedures which are monitored as part of daily operations. Participating companies, through their risk and compliance areas, work together with affected business area(s), to determine breach causes and implement corrective measures to prevent their reoccurrence. Remedial action may take a number of forms including: Improvement of processes and/or procedures and/or documents through amendment and/or introduction of new processes, procedures or documents. Reinforcement of internal policies and procedures and knowledge of the Code through tailored coaching and/or training sessions with the relevant business areas, and staff, including on an individual basis where required. Expanding staff resources. Financially compensating affected consumers in accordance with the terms of the applicable policy and the Insurance Contracts Act Providing written notification to affected consumers of the availability of EDR. Risk and compliance areas monitor implementation and completion of remedial action in response to identified breaches through a number of mechanisms including: 32 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

33 Continuous monitoring via due diligence reporting tools to ensure that the breaches are resolved within appropriate timeframes. Regular meetings to discuss progress of rectification actions. Periodic reporting to Senior and executive management, and/or the Chief Executive Officer and/or Audit and Risk Compliance Committees. Documentation of rectification plans to support rectification of all issues. Participating companies provided data to us about Code breaches identified in 2010/2011 through their internal breach reporting and monitoring programmes. The data excludes breaches identified by us or significant breaches of the Code reported by participating companies to us. Chart 7 (page 34) shows that 22 participating companies identified a total of 2,010 Code breaches during 2010/2011 consisting of: 1,386 breaches of section 2 the standards that apply to the initial enquiry, buying of insurance, renewal of cover and employees and authorised representatives when selling participating companies products. 444 breaches of section 3 the standards that apply to claims, employees and service providers that handle claims and financial hardship. 180 breaches of section 6 the standards that apply to internal complaints and internal disputes handling procedures. Chart 8 (page 35) shows that the most frequently breached sections consisted of: 848 breaches of section 2.2, which requires a participating company to send any money owed to a customer, within 15 business days of the cancellation of the policy. 435 breaches of section 2.1.4, which requires a participating company to conduct its sales process in a fair, honest and transparent manner. 117 breaches of section 3.2.3, which requires a participating company to keep a customer informed of the progress of their claim every 20 business days. 113 breaches of section 3.1, which requires a participating company to decide to accept or deny a claim and notify the customer of its decision within 10 business days of receipt of the claim, provided it has received all necessary information at the time the claim is lodged and no further assessment or investigation is required. 33 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

34 Chart 7: Breaches by Code category identified by Participating Companies in ,500 2,000 2,010 1,500 1,386 1, Section 2 Buying Insurance Section 3 Insurance Claims 0 0 Section 4 Responding to Catastrophes & Disasters Section 5 Information & Education Section 6 Complaints Handling Procedures 0 Section 7 Code Monitoring & Enforcement Grand Total 34 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

35 Chart 8: Breaches by Code section identified by Participating Companies in Grand Total (c) (c) (b) (a) (1-5) ,000 1,500 2,000 2,500 2,010 Grand Total 35 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

36 Examples of frequently breached sections: Breaches of section Due to a processing failure a participating company failed to provide policy renewal notices to a number of customers within the statutory timeframe. In such circumstances sections 58 & 59 of the Insurance Contracts Act 1984 automatically renew the policy on identical terms to the expiring cover and for the same period. The participating company addressed this issue by: Sending new annual renewal offers to all affected customers Including one month s free cover for all affected customers, and Implementing appropriate controls to detect missing renewal notices. Breaches of section 2.2 Example 1: A participating company reported that as a result of human error, premium refunds were not issued to customers within 15 business days. The participating company addressed this issue by: Issuing cheques as a matter of priority to all affected customers Providing refresher training on the Code s requirements to relevant staff, and Introducing new compliance monitoring procedures. Example 2: A participating company reported that there were delays in issuing premium refunds to customers due to poor internal communication. As a result, the participating company: Provided refresher Code training to relevant staff, and Emphasised the importance of speedy internal communication, to ensure refunds to be made within 15 business days. 36 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

37 Breaches of section 3.1 Several participating companies reported that a number of claims were not accepted or declined within 10 business days of receipt of the claims. This was due to a failure by claims staff to adhere to documented claims handling procedures and timeframes. The relevant participating companies: Arranged for all affected customers to be notified of the outcome of their claims Promptly paid customers whose claims had been accepted, and Provided refresher Code training to claims staff. Breaches of section Several participating companies reported that loss assessors and/or claims staff failed to keep customers informed of the progress of their claims every 20 business days, contrary to established procedures. The participating companies addressed this issue by: Providing refresher training on the Code s requirements to loss assessors and/or claims staff, and Improving compliance monitoring processes. 37 of 62 General Insurance Code of Practice Overview of the Year 2010/2011

38 7 New and Renewed Policies, Claims, Declined Claims and Internal Dispute Resolution Data Participating companies submitted various data to us about their general insurance products, both commercial and personal, on a class by class basis for the 2010/2011 period, covering: New policies of insurance and insurance renewals Claims Declined claims, and Disputes handled internally by participating companies via internal dispute resolution (IDR) procedures and their outcomes. All of the data is presented in detail in the following appendices to this paper: Appendix A All Classes of General Insurance, page 57. Appendix B Personal Classes of General Insurance, pages Appendix C Commercial Classes of General Insurance, pages Our observations are outlined below noting that percentages have been rounded up/down to the nearest whole number, and < means less than. One further appendix, Appendix D Amended Data for the Year ending 30 June 2010, at page 62 outlines amendments to some of the 2009/2010 data, which we have taken into account. 38 of 62 General Insurance Code of Practice Overview of the Year 2010/2011