Banking RC recommendations address unfair insurance practices

5th Feb 2019

The Banking Royal Commission report contains several specific recommendations that will ‘level the playing field’ for consumers, which has been skewed against them for too long, and will deter industry misconduct, said the Australian Lawyers Alliance (ALA).

“While there is nothing in the recommendations that fundamentally reshapes the financial services sector, it is pleasing that some of the recommendations directly address the unfair way in which consumers have so often been treated by banks and insurers,” said ALA spokesperson, Mr Josh Mennen.

“The power imbalance has been particularly acute for consumers who have had their insurance claims declined and their policies avoided by their insurer after years of paying premium payments in good faith, placing them in extreme financial hardship and distress.

“We particularly welcome the recommendation that the Insurance Contracts Act should be amended so that a consumer applying for a life insurance policy will be required to take reasonable care not to make a misrepresentation in response to the insurer’s questions, whereas they are currently required to surmise, or guess, what information might be important to the insurer.  This reform places the burden on the insurer to elicit the information that it needs, which is only fair given the knowledge gap between the consumer and the insurer as to what type of information the insurer wants to know.

“We applaud the recommendation to allow an insurer to avoid a life insurance contract only on the basis of an innocent non-disclosure or misrepresentation if it can show that it would not have entered into a contract with the consumer on any terms.  Currently an insurer may avoid a policy if it would have merely increased the price had it received more information about the consumer – Commissioner Hayne identified that the current laws disproportionately favour insurers and are fundamentally unfair.  

“These changes will really benefit consumers. We have seen time and time again that insurers will look for any excuse to renege on their obligation to play claims and these changes will ensure greater parity in the relationship between consumers and their life insurers.

The ALA has frequently called for the insurance code of practice to be approved and monitored by ASIC. 

“We are very pleased that the report calls for ASIC to approve industry codes and ensure that they are legally enforceable.  This means no more voluntary, non-binding, self-regulated code,” said Mr Mennen.

“We would have liked to have seen specific recommendations made concerning life insurers claim assessment tactics such as heavy handed surveillance, and also their discriminatory practices against mental health claimants.  These will now need to be addressed in a binding code of practice. 

“Commissioner Hayne has embraced the idea that consumers should be able to have confidence that if they enter into a life insurance policy in good faith their insurer will treat them fairly and pay valid claims.  These reforms will pave the way for a fairer insurance system for decades to come.”

Tags: Insurance