Northern Australian Insurance Inquiry – Interim Report

Tuesday February 12th, 2019

On 18 December 2018, the Australian Competition and Consumer Commission (ACCC) released its Northern Australia Insurance Inquiry first interim report. The report can be read here and media release here.

Where to next for the inquiry?

The ACCC inquiry will continue through 2019 and conclude at the end of 2020.

The report sets out a range of measures the ACCC consider will improve how insurance markets work and achieve better outcomes for consumers. The ACCC has urged governments and industry to take quick action on their 15 recommendations, some of which have been made a number of times before with those most relevant to strata owners summarised as follows:

Recommendation 1: Abolish stamp duty on strata insurance products

It has been widely acknowledged that stamp duties on insurance contracts are an inefficient form of taxation. This recommendation is in line with recommendations from previous inquiries into insurance and taxation issues.

Recommendation 2: Re-base stamp duty, use stamp duty revenue and mitigation
Re-basing stamp duty to be levied on sums insured will make it fairer to consumers living in higher risk areas. Governments have previously received and continue to enjoy a windfall gain from the growth of insurance premiums in northern Australia. Directing revenue from stamp duties to public mitigation works should only be considered where insurers have provided estimates of premium reductions that would result from such works, and commit to reporting against these where work is undertaken (see recommendation 14).

Recommendation 4: Standardise definitions of prescribed events
New standard definitions should be drafted in a way that removes potential gaps in coverage between prescribed events, avoids the introduction of ambiguous concepts, and does not unnecessarily limit insurers’ scope for future beneficial product innovation.

Recommendation 5: Review and mandate standard cover
By ensuring there is one common product from each insurer (but not necessarily each brand), consumers could easily benchmark insurers against each other. This should not limit an insurer from offering other products that provide cover that differs from the standard cover product but insurers should be required to clearly indicate how these products differ from their standard cover product.

Recommendation 11: Extend the ban on conflicted remuneration to insurance brokers
Commissions and other benefits given to insurance brokers can give rise to an unacceptable conflict of interest. As is already the case for other financial products, insurance brokers should be prohibited from receiving commissions and other benefits where these create a conflict with a broker’s obligation to act in the best interest of their clients. Disclosure alone is insufficient to address these conflicts.

Recommendation 12: Better information for consumers lodging a claim
The General Insurance Code of Practice should be amended to require that at the time a consumer lodges a claim, an insurer or its agent must clearly inform the consumer of the insurer’s claim handling policy, and expressly refer to:
• how the insurer will assess the validity of the consumer’s claim
• the insurer’s preferred repairer policy and in what circumstances a consumer can use their preferred repairer
• how decisions are made on cash settlements
• who will be managing the claim (for example, the name and contact details of a contracted claims company if relevant)
• the fact that the loss adjuster is acting on behalf of the insurer and not the consumer
• the consumer’s right to make a complaint to the insurer and the Australian Financial Complaints Authority.

The ACCC have also made 13 draft recommendations they believe have the potential to make markets work more efficiently and consider a stronger policy response may be necessary to address the scale of insurance affordability concerns that are emerging.

Five focus areas have been identified for the next stage of the inquiry in 2019 to explore these areas in a level of detail that has not been possible to date.
In particular, the ACCC will broaden the focus of the inquiry in 2019 to look at how issues of insurance affordability and availability have been considered and addressed around Australia and/or internationally, and in relation to other forms of insurance.

More details on these focus areas, as well as specific consultation questions on the draft recommendations are set out in chapter 13 of the report.
Submissions in response to the draft recommendations are due by Friday 12 April 2019. Information on how to make a submission is in Chapter 13 of the report.

This article was Syna Hickmott, Insurance Account Executive - Marsh Advantage Insurance.