One of the key recommendations from the Hayne Royal Commission for the insurance industry is for claims handling to be included in the definition of ‘financial services’ under the Corporations Act 2001. The net effect of this is to require claims handling services to be provided “efficiently, honestly and fairly”. Specifically, this includes:
- investigating claims and policy interpretation;
- conducting settlement negotiations;
- preparing estimates of loss or damage, or likely repair costs; and
- making recommendations about mitigation of loss.
Potentially any such changes to the Corporations Act may unnecessarily complicate existing requirements under section 13 of the Insurance Contracts Act 1984 for insurers to act in ‘utmost good faith’. The obligations under section 13 already extend to both pre-contractual and post-contractual conduct including claims handling.
While arguments have been made that consumers need more legal protection and for regulators to be given more statutory powers in order effect such protection, such arguments need to be considered in detail.
Insureds already have the ability to bring proceedings against insurers for breaching section 13. The remedies available include the award of damages or preventing insurers from acting in a certain way. While some have suggested the changes may provided additional protection for consumers against misleading or deceptive conduct by insurers, it is difficult to contemplate any situation where any such acts or omissions by the insurers would not also result in breaches of section 13.
Similarly, ASIC already has the power under the Corporations Act to vary, suspend or cancel the AFS Licenses of insurers for breaching section 13. Given ASIC has already been repeatedly caught out before the Hayne Royal Commission for failing to exercise their existing regulatory powers, the call for more regulatory powers distracts from the real issues identified by the Hayne Royal Commission.
In our view, the changes to the Corporations Act may simply cause unnecessary confusion. Arguably the duty of ‘utmost good faith’ exceeds the current requirements under section 912A of the Corporations Act for AFS License holders to act “efficiently, honestly and fairly”. The risk here is that any changes may have the unintended effect of watering-down the protection already provided to insureds and third party beneficiaries under section 13.
It is also unclear whether such changes would involve ASIC treating claims handlers as, in effect, authorised representatives (in a similar way to agents/representatives of other financial services providers). Such a development might result in the addition of considerable red-tape to the claims handling process.
Whether the proposed changes are ultimately made remains to be seen, however we query whether they type would really result in any practical additional protection for insureds.
