GI Code of Practice: Insurers’ significant Code breaches have doubled

According to the annual report, 22 insurance companies reported a total of 116 significant breaches, up from 57 in 2020–21. The breaches affected over 1.7 million consumers, said the report, and resulted in remediation payments of more than $52 million.

The most commonly breached standard: timely communication

“Timely communication obligations are the most commonly breached standards we’re seeing,” said Prue Monument (pictured above) general manager of Code Compliance and Monitoring, a separately operated unit of the Australian Financial Complaints Authority (AFCA).

According to the GICGC’s media release, large numbers were also related to overcharging customers and pricing errors.

“There are a lot of reasons why we can see breach numbers go up so I don’t think there’s necessarily a definitive answer,” said Melbourne based Monument, who has wide experience in regulatory and compliance roles in tertiary education, for charities and non-profits and in the Department of Immigration.

Three key factors are driving up breaches

She said her Monitoring Team believe there are key factors driving up the breaches.

“Firstly, we know that there’s been a significant investment by the industry to improve their breach, identification, recording and reporting,” said Monument. “That’s a good thing.”

She said if insurers can better identity where their problems are occurring then they can proactively fix them. “That’s good for business and that’s good for consumers,” said Monument.

Read more: Insurers record increase in significant code of practice breaches

She said the figures for 2020-21 don’t mean there are necessarily more breaches actually occurring. In many cases, the jump upwards in breaches, she said, is a sign that the industry is getting better at identifying and reporting them.

“So over time, through that process, we might start to see breach reports come down,” said Monument. However, she said the lack of timeliness and poor communication around claims handling is a key issue.

“We know there are a range of challenges at the moment: increased catastrophes, supply chain issues and a tight labour market,” said Monument. “That said, the Code breach data has been showing a declining performance around timeliness and communication prior to these more recent challenges.”

She said insurers need to do “a lot of work” to address these issues.

Monument said ASIC’s price promise review has also driven breach numbers up, particularly significant breaches.

“As insurers have gone in and looked in detail at their pricing systems and whether price promises have carried through to consumers, a range of issues have been uncovered,” she said. These include historic breaches, said Monument.

The GICGC’s chair, Veronique Ingram, was less diplomatic about the breaches by insurers.

“In many cases, insurers have been breaking pricing promises for years,” said Ingram, who is a former chief executive and inspector-general in bankruptcy at the Australian Financial Security Authority (AFSA).

“Overcharging premiums is harmful to consumers and insurers should be doing more to prevent this,” she said.

Another factor playing into the dramatic rise in significant breaches could be the end of border restrictions, lockdowns and other significant COVID-19 restrictions resulting in a natural rise in claims.

This year’s breach figures are similar to 2019-20

The GICGC data for July 01, 2019, to June 30, 2020 – a time period that, similar to the recent annual report, was mostly free of COVID-19 impacts – showed 112 significant breaches of the Code, very close to 2021-22’s.

However, back in 2020, the GICGC was more forgiving of insurers’ significant breaches. At that time, Ingram noted that unforeseen events during the period put enormous pressure on Code subscribers as they struggled to manage an influx of claims.

Read more: “General insurers have rarely, if ever, been presented with such operational challenges”

“2019-20 has been a period like no other,” Ingram. “The year started with industry responding to regulatory changes following the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry, and preparing to transition to a new Code of Practice.”

Devastating bushfires and floods followed and then COVID-19.

“The Committee acknowledges that general insurers have rarely, if ever, been presented with such operational challenges,” she said.

Insurance companies in Australia are required to send notifications of their significant breaches of the General Insurance Code of Practice to the GICGC within 10 days. According to the GICGC’s annual report, there are 48 Code subscribers and a total of 171 entities bound by the Code. In addition, there are also 112 coverholders and 10 claims administrators bound by the Code through Lloyd’s of London.