General Insurance Code of Practice. Overview of the Year 2009/2010

(1)

General Insurance Code of

Practice

(2)

1. Overview of the Year 2009/2010

This is the Financial Ombudsman Service Limited’s (FOS) annual public report for the year 1 July 2009 to 30 June 2010. The report contains aggregated industry data and consolidated analysis on compliance in accordance with section 7.8 of the General Insurance Code of Practice (the Code).

FOS’ observations on Code compliance are based on:

 Outcomes of FOS reviews of participating companies’ compliance with the Code and investigations of reports of alleged non-compliance with the Code. This data is described in Appendix B;

 Reports of significant breaches of the Code provided by participating companies to FOS;

 Data collected by participating companies based on breaches of the Code that they have identified through their internal breach reporting and monitoring programmes. This data is contained in Appendix C; and

 Other data provided by participating companies about internal dispute resolution and outcomes, together with new and renewal policy data, and claims and rejected claims data, across all classes of insurance business covered by the Code. This data is described in Appendix D.

At the time of data collection for this report, 136 companies participated in the Code and submitted data to FOS. Currently 146 companies throughout Australia have voluntarily adopted the Code. These companies are listed at Appendix A.

This report has been published later than has been the case in the past. The report is generally published shortly after FOS publishes its Annual Review, which for the 2009/2010 reporting period occurred at the end of February 2011. A number of factors impeded publication of this report including:

 Delays in submission of data by a number of participating companies;

 Discrepancies in data submitted by a number of participating companies, which required investigation and resolution to ensure data integrity;

(5)

 Expansion of the report to include new data not previously collected or published by FOS; and

 Restructuring of the team responsible for monitoring the general insurance industry’s compliance with the Code.

(6)

2. Snapshot of the Year 2009/2010

The key outcomes for the year of 2009/2010 are as follows:

 The General Insurance industry was significantly impacted by several extreme weather events throughout Australia, closely following events that had occurred during the 2008/2009 year.

 The extreme weather events1 recorded during the reporting year included:

o Flooding in far North Queensland – January 2009;

o Bushfires in Victoria – February 2009;

o Flooding in Northern NSW – April 2009

o Severe storms in NSW and Queensland - May 2009;

o Bushfires in Western Australia - December 2009;

o Severe storms in Melbourne, Victoria and Perth, Western Australia - March 2010; and

o Floods in Western Queensland - March 2010.

The above events saw the tragic loss of life, destruction of property and infrastructure with estimated repair costs exceeding $3 billion.

 Consumers and businesses lodged 3,872,618 claims and participating companies accepted liability for 98%2 of these.

 Consumers and businesses raised 22,581 internal disputes with participating companies, across commercial and personal lines of insurance business.

1

The Insurance Council of Australia publishes historical and current disaster statistics at:

http://www.insurancecouncil.com.au/IndustryStatisticsData/CatastropheDisasterStatistics/tabid/1572/Default.aspx

2

(7)

 Participating companies resolved 22,643 internal disputes, with 7,559 internal disputes, or 33%, resolved in favour of consumers and businesses.

 Participating companies reported four significant breaches of the Code to FOS.

 FOS’ investigations into alleged breaches of the Code established 314 instances of non-compliance.

(8)

3. Thanks

The General Insurance Code of Practice is a voluntary code of practice that has been embraced by participating companies through their:

 Organisation-wide commitment to the Code’s service standards;

 Continued willingness to respond to feedback by rectifying and/or improving existing processes and systems and effecting significant change in response to issues; and

 Extensive cooperation with FOS during investigations of alleged Code breaches and annual reviews of Code compliance, notwithstanding the continuing impact of severe weather events on their resources.

The close monitoring of the Code by the Systemic and Code Review team at FOS, the co-operation from all stakeholders including consumers and community organisations in reporting potential breaches, and all participating companies in assisting and co-operating with investigations, helps maintain an active and meaningful Code.

FOS extends its thanks to all those who have participated in the monitoring of the Code through what has been another challenging year.

(9)

4. Monitoring Code Compliance

4.1 FOS response to non-compliance

FOS maintains a consistent approach in its response to instances of non-compliance with the Code by participating companies, consisting of the following actions:

1. Once satisfied that a participating company has failed to comply with the Code’s service standards, steps are taken to:

 Identify the cause of each failure;

 Determine the duration of each failure;

 Determine whether similar failures had occurred previously;

 Assess the adequacy of existing compliance arrangements;

 Determine whether there were any consumers disadvantaged as a result of the failure;

 Liaise with the participating company to determine the nature of the action required to address the non-compliance;

Monitor the participating company’s progress to ensure that corrective measures are implemented within agreed timeframes; and

 Ensure that 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, it is asked to:

 Describe what action was taken;

 Provide appropriate documentary material supporting the action it has implemented.

For example, by providing extracts from its claims handling manual, its Internal Dispute Resolution register or its training records; and

(10)

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 that the matter is isolated, then it is expected to explain how it reached that conclusion.

For example, a participating company may have conducted a review of all relevant 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 FOS’ enquiries, it is asked to:

 Explain the basis of its conclusion; and

 Provide appropriate evidence in support of its conclusions.

For example, if a 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.

5. Where a breach allegation is referred to FOS for investigation by a consumer or business (or by a duly appointed representative), FOS notifies them of the outcome of its investigations.

(11)

4.2 Non-compliance Outcomes

3

The following discussion about non-compliance outcomes for the year ending 30 June 2010 covers three areas:

(i) Non-compliance outcomes identified by FOS through investigations of alleged Code breaches and annual reviews of compliance – see Appendix B and Chart A;

(ii) Significant breaches of the Code identified and reported by participating companies to FOS; and (iii) Other non-compliance outcomes identified and reported by participating companies – see Appendix C.

4.2.1 Non-compliance outcomes identified by FOS4

While full details of the type and frequency of non-compliance identified through FOS’ investigations of alleged breaches of the Code and annual reviews of compliance are noted in Appendix B, the key outcomes are as follows.

Total number of compliance breaches: This year there were 314 instances of non-compliance with the Code, 42% down on the previous year. Code compliance reviews: FOS conducted 124 Code compliance reviews during the year including five participating companies which were reviewed for the first time. During the year FOS identified 68 Code breaches arising from Code compliance reviews, across 23 participating companies. All breaches were addressed by participating companies to FOS’ satisfaction.

Code investigations: FOS investigated 616 alleged breaches of the Code arising from 119 matters and involving 30 participating companies. The alleged breaches were reported to FOS by:

 FOS Staff – 59%;

 FOS Decision Makers – 19%;

 Consumers and businesses – 18%;

3

Refer to Appendices B and C and Chart A.

4

(12)

 Community legal centres – 3%; and

 Private legal representatives – 1%.

The largest source of investigations is FOS itself with 78% of all matters referred for investigation, coming from FOS Decision Makers and FOS staff. Lawyers and financial counsellors, representing consumers and/or businesses referred 4% of matters, and the remaining 18% comprised matters referred by consumers and businesses.

Non-Compliance Outcomes: As noted earlier, FOS was satisfied that participating companies had failed to meet the Code’s standards 314 times during the year (see Appendix B). Chart A below shows that there were 20 or more breaches of section 3.4.1, section 3.6.1 and section 6.1.1 – these are also discussed in further detail below.

Chart A

0 5 10 15 20 25 30 35 40

3.4.1 - Conduct of claims handling 3.6.1 - Conduct of claims handling by Employees & Conduct of claims

handling by Service Providers

6.1.1 - Conduct of complaints handling

29

36

31

N

u

mb

er

o

f

In

stan

ces

Code Sections with 20 or more Breaches

2009/2010

(13)

1. Section 3.4.1: This section requires a participating company to conduct claims handling in a fair, transparent and timely manner.

Example: The applicants had lodged a claim with a participating company for a damaged fence caused by a storm. It denied the applicants’ claim on the basis that the damage had not been caused by a storm. A dispute arose about the decision to deny the claim, which was subsequently referred to FOS for determination. A FOS Decision Maker determined the dispute in the applicants’ favour, concluding that the fence had been damaged by a storm and referred the matter for investigation due to concerns about the way in which their claim had been handled.

Following an investigation, FOS was satisfied that the participating company had breached section 3.4.1 of the Code, because it had not handled the claim fairly or in a timely manner for the following reasons:

 The applicants lodged a claim for the damaged fence caused by a recent storm. The participating company asked the applicants to obtain three quotes for the damage, which they subsequently did. However, after receiving the quotes, the participating company then advised the applicants that the quotes also needed to include information about the cause of the damage. The applicants arranged for the quotes to be updated with this information and re-submitted the quotes.

 Although the applicants had provided updated quotes, the participating company informed the applicants that they had appointed a fencing contractor to assess the damage to the fence, identify the cause of the damage and provide a report.

 The contractor’s report, which did not include any supporting photographs, stated that the damage to the fence was not due to a storm, but was due to attempts by the applicants to remove a tree stump and clear debris away from the fence. Although the applicants were available at the time the contractor inspected the damaged fence, he did not speak with them.

 The participating company denied the applicants’ claim on the basis of the contractor’s report, and without seeking further clarification from them, even though it was aware they had photographs of the damaged fence taken shortly after the storm event. The applicants’ photographs clearly showed that there was dense vegetation on either side of the fence, and that the tree stump showed no evidence of digging around its base, or any other evidence of an attempt to remove it.

2. Section 3.6.1: This section requires a participating company’s employees and service providers to conduct their services in an honest, efficient, fair and transparent manner.

(14)

Example: The applicant had lodged a claim with the participating company for damage to his motor vehicle caused by a collision with a pole in a car park. The participating company allocated the management and processing of the claim to a service provider.

The service provider denied the claim on the basis that the applicant had failed to disclose a licence suspension at inception of the policy. It asserted that had the participating company known about the suspension, it would not have offered the applicant cover. The service provider purported to avoid the policy from its inception and cancelled it. It also suggested that the applicant had acted fraudulently, and might be investigated for fraud.

The applicant disputed the service provider’s decision to deny the claim and subsequently referred the dispute to FOS. The dispute was determined in the applicant’s favour. A FOS Decision Maker referred this matter for investigation due to concerns about the way in which the participating company had handled the applicant’s claim and in particular the service provider’s conduct.

Following an investigation, FOS was satisfied that the participating company had breached section 3.6.1 of the Code, through the actions of its service provider, by handling the applicant’s claim in an unfair manner because:

 Despite the absence of evidence of fraud on the part of the applicant, the participating company’s service provider suggested to the applicant that he had acted fraudulently and that he might be investigated for fraud. There was no evidence available to the service provider to suggest that the applicant had acted fraudulently in any way. Even if any facts had been established to indicate a prima facie suspicion of fraudulent non-disclosure, it would still have been inappropriate to assert fraud, without first giving the applicant the opportunity to put forward his version of relevant events; and

 The service provider purported to avoid the policy from its inception date and cancelled it. However, the service provider was not entitled to avoid the policy given that this remedy was only available if fraudulent non-disclosure was established. It was also not entitled to cancel the policy. As a result, the purported avoidance and cancellation of the policy was invalid and legally ineffective.

The participating company agreed to implement a number of actions to address this issue including:

 Conducting an audit of its service provider’s claim files to assess whether any other claims had been handled in a similar manner. The audit highlighted that this incident was isolated and that the audited files complied with the Code’s claims handling service standards.

 Implementing measures to reduce the likelihood of such errors recurring including:

o Instructing the service provider that it is not authorised to allege fraud against a policyholder, under any circumstances, in the absence of written approval from the participating company; and

(15)

o Meeting with the service provider to discuss the issues that arose in this matter.

3. Section 6.1.1: This section requires a participating company to conduct complaints handling in a fair, transparent and timely manner.

Example: A participating company held an uninsured third party responsible for damage to a customer’s insured rental property, and as a result, sought to recover monies from the uninsured third party.

The third party’s legal representative, a community legal centre (CLC), had informed the participating company that the third party denied liability for the damage, and was also unable to repay the alleged debt due to financial hardship. The CLC provided evidence supporting the third party’s financial hardship.

The CLC subsequently wrote to the participating company asking it to review its decision to recover the alleged debt from the third party, through its internal dispute resolution (IDR) process. The CLC contacted FOS for assistance when the participating company failed to respond to its IDR request.

FOS initiated an investigation and wrote to the participating company about a number of concerns including the complaint that the participating company had failed to respond to the CLC’s IDR request. The participating company immediately reviewed the matter via its IDR process and decided to cease all recovery action, on the basis of the third party’s financial hardship.

The participating company found that staff responsible for processing incoming correspondence had failed to identify the correspondence as an IDR request. As a result, the CLC letter was not immediately referred to the recoveries officer handling the matter, resulting in a delay of 3 weeks before the letter was reviewed. Further, although the recoveries officer believed that the IDR request had been sent to IDR via email, the participating company was unable to find any evidence that the IDR request had been sent to or received by its IDR area.

As a result FOS was satisfied that the participating company had failed to comply with section 6.1.1 of the Code because it had not handled the complaint in a timely manner.

In addressing the Code breach, the participating company provided refresher training for all staff in its recoveries area about its procedures for referring IDR requests to its IDR area. It also reminded staff responsible for processing mail to check specifically for requests for IDR, to ensure referral to the responsible area for immediate action.

(16)

Common causes of non-compliance: FOS’ investigations showed that the reasons for non-compliance were varied and included:

 Misunderstanding how a service standard applied to General Insurance operations;

 Underestimating the time required to implement the service standards;

 Applying the service standards in practice but failing to document the underlying compliance requirements appropriately or at all;

 Changes made to processes/systems/documents without the knowledge of compliance personnel;

 Incorrectly concluding that compliance measures were sufficient;

 Failing to provide adequate training; and

 Failing to adhere to established procedures.

4.2.2 Significant breaches of the Code identified and reported to FOS by participating companies

Section 7.3 of the Code requires participating companies to report an identified significant breach of the Code to FOS 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 our arrangements to ensure compliance with this Code; c) the extent of any consumer detriment; and

(17)

Once FOS is satisfied that the significant breach has been appropriately rectified, it is required to report the significant breach, including the participating company’s agreed corrective action, to the Code Compliance Committee (see section 7.12(a) 5 of the Code).

During this year, FOS received four reports of significant breaches of the Code from three participating companies. Each of the significant breaches is discussed below:

Significant breach 1

A participating company engaged a service provider to manage all claims within a particular class of personal insurance business. The participating company reported a significant breach of the Code to FOS because the service provider was unable to comply with the following Code standards:

1. Section 3.1 - Where no further information, assessment or investigation is required, within 10 business days of receipt of a claim, the participating company is required to make a decision to accept or deny the claim and notify the customer of its decision.

2. Section 3.2 - Where further information, assessment or investigation is required, the participating company is required to take the following steps:

a. Section 3.2.1(a) and (c) - Within 10 business days of receiving a claim, notify the customer of the detailed information required to make a claim decision; and provide the customer with an initial estimate of the time required to make a decision on the claim.

b. Section 3.2.5 - When all necessary information has been received and all investigations have been completed, decide to accept or reject the claim and notify the customer of the decision within 10 business days.

The participating company informed FOS that the significant breach persisted for 3.5 months and occurred as the result of an unexpected increase in the number of new claims. The increase in claims during those months was atypical and unseasonal. As a result, the service provider did not have sufficient resources to meet the unexpected increase in demand. During the relevant period 59% of claims did not comply with one or more of the Code’s claims handling standards noted above. The maximum timeframe for responding to claims during this period was 19 business days.

5

(18)

The participating company did not consider that consumers suffered any detriment due to this significant breach. It noted that the longest timeframe for responding to claims during this period was 19 business days; customers were advised about the delays; and there was no impact on urgent or priority claims. Further, all complaints and disputes arising from claims handling delays were handled within the Code’s standards for complaints handling.

The corrective actions implemented by the participating company and service provider in response to the significant breach consisted of:

 A review of all outstanding claims to determine status and implement action plans.

 Staff overtime and secondment of experienced claims staff to assist with the backlog of claims.

 Recruitment of new staff to deal with claims, claims enquiries and sales enquiries.

 Regularly updating existing claimants on the status of their claim.

 Contacting all new claimants and agreeing on an alternative timeframe for claims assessment due to the delays.

 Ensuring that urgent/priority claims were dealt with appropriately.

 Daily monitoring of claims handling timeframes by the Risk and Compliance team.

 Improved compliance reporting standards.

 Development of a tool for predicting the number of claims received in a given month to ensure adequate resources can be deployed effectively in the future.

A participating company informed FOS that it was unable to comply with the following standards of the Code: Claims handling standards:

(19)

2. Section 3.2 - Where further information, assessment or investigation is required, the participating company is required to take the following steps:

a. Section 3.2.1(a) - Within 10 business days of receiving a claim, notify the customer of the detailed information required to make a claim decision.

b. Section 3.2.3 - Keep the customer informed of the progress of the claim at least every 20 business days. c. Section 3.2.4 - Respond to routine customer requests for information within 10 business days.

d. Section 3.2.5 - When all necessary information has been received and all investigations have been completed, decide to accept or reject the claim and notify the customer of the decision within 10 business days.

Dispute handling standards:

3. Section 6.6(c) – The participating company is required to respond to a customer’s dispute within 15 business days provided all necessary information has been received and all investigations have been completed.

The participating company informed FOS that the breaches of the claims handling standards were caused by:

 A high level of absenteeism with the claims team due to ill health over an extended period.

 New claims staff being unable to meet performance benchmarks.

 A 30% attrition of claims staff.

 Adverse impacts on productivity due to problems with software underlying a new imaging and workflow claims system which was intended to provide efficiencies in claims handling.

The participating company noted that the duration of these breaches was extended due to the failure of interim measures which were intended to rectify the non-compliance issues.

The participating company informed FOS that the breaches of the dispute handling standards occurred due to:

 A doubling of disputes sent to its internal dispute resolution (IDR) team, directly related to a doubling of claims received during the relevant period.

(20)

 Reduced available working hours due to overlapping and unanticipated staff leave requirements.

 Resourcing of the IDR team had not kept pace with the influx of disputes.

 Files were being received from the claims team outside of 15 business days from the date of the request for IDR.

The participating company reported that while difficult to quantify detriment, customers did experience delays in the handling of claims and the internal review of disputes during the breach period. However, the number of individual breaches was not large and occurred intermittently over a few months. In addition, on every occasion customers were kept informed and extensions of time were sought and obtained.

The participating company implemented a number of corrective actions consisting of: In the claims area:

 Review of claims operations.

 Implementation of a plan to clear the claims backlog within 3 months through:

 Reallocation of managerial resources to allow for focus on departmental structure, improvements in claims processing, staff training, and actual claims processing.

 Use of authorised overtime as an interim measure to clear file backlogs and restructuring of the claims team.

 Implementation of a continual recruitment drive and secondment of staff to assist with the backlog.

 Restructuring of tasks and roles of claims officers to give them more time to concentrate on the assessment and management of claims.

 Introduction of a new claims system.

 Evaluation of claims staff competencies to identify gaps in knowledge and development of a training package and individual training plans.

 Development of a checklist and guidelines to assist claims staff in the interpretation of policy clauses when assessing claims.

(21)

 Monitoring and reporting by management on a weekly basis to track the progress of all teams.

 Introduction of further enhancements to the new imaging and workflow claims system with high priority placed on resolving the software issues.

 Monitoring of compliance with claims handling standards.

 Regular reporting to FOS on progress. In the IDR area:

 Transfer of preparation of FOS submissions to another team to enable the IDR team to focus on IDR.

 Recruitment of additional staff for the IDR team.

 Review of claims handling processes to ensure IDR requests were referred to the IDR team within the required timeframes.

 Senior managers assisted with the review of IDR files.

 Monitoring complaint requests and referral to IDR.

A participating company engaged a service provider to manage all claims within a particular class of personal insurance business. The participating company reported a significant breach of the Code, which persisted for 12 months, because the service provider was unable to comply with the following Code standards:

Claims handling standards:

2. Section 3.2.1(a), (b) and(c) - Where further information, assessment or investigation is required, within 10 business days of receiving a claim the participating company is required to: notify the customer of the detailed information required to make a decision whether to

(22)

accept or deny the claim; if necessary, appoint a loss assessor/loss adjuster; and provide an initial estimate of the time required to make a decision on the claim.

3. Section 3.2.3 – The participating company is required to keep the customer informed of the progress of the claim at least every 20 business days.

4. Section 3.2.5 - When all necessary information has been received and all investigations have been completed, within 10 business days the participating company is required to decide to accept or reject the claim and notify the customer of its decision.

Monitoring standards:

5. Section 7.2(a) – The participating company is required to have appropriate systems and processes in place to enable FOS and the participating company to monitor compliance with the Code

The participating company identified the cause of the significant breach as being due to limitations in system design, system monitoring and training. It informed FOS that while difficult to quantify consumer detriment, customers had experienced delays in claims handling.

To rectify the significant breach, the participating company worked closely with the service provider to develop and implement improved claims management processes and compliance reporting.

In addition the participating company:

 Implemented monthly exceptions reporting in order to track the effectiveness of the service provider’s claims diary controls.

 Commissioned two further independent reviews of the service provider’s activities, at 6 monthly intervals. The results of the reviews were shared with the service provider and any issues arising from the reviews were addressed.

 Made significant changes to the service provider’s existing claims procedures which led to reduced claim lifecycle; improved service standards; and improved efficiencies.

 Amended its Service Level Agreement with the service provider in relation to actioning incoming mail and telephone service levels, together with weekly reporting to the participating company on compliance.

(23)

 Provided further training for the service provider’s claims staff to facilitate adherence to the Code’s claims handling timeframes.

FOS also conducted a compliance review of the service provider’s processes and procedures, following implementation of the corrective measures noted above.

A participating company reported a significant breach to FOS, which persisted for several months, due to its inability to comply with the following Code standards:

Claims handling standards:

2. Section 3.2.1(a) and (c) - Where further information, assessment or investigation is required, within 10 business days of receiving a claim the participating company is required to: notify the customer of the detailed information required to make a decision whether to accept or deny the claim; and provide an initial estimate of the time required to make a decision on the claim.

3. Section 3.2.3 – The participating company is required to keep the customer informed of the progress of the claim at least every 20 business days.

4. Section 3.2.4 – The participating company is required to respond to routine customer requests for information within 10 business days. 5. Section 3.2.5 - When all necessary information has been received and all investigations have been completed, within 10 business days

the participating company is required to decide to accept or reject the claim and notify the customer of its decision.

6. Section 3.3 - If the timeframes are impractical, the participating company is required to agree reasonable alternative timeframes with the customer.

Dispute handling standards:

7. Section 6.2 – The participating company is required to respond to complaints within 15 business days provided all necessary information has been received and all investigations have been completed.

(24)

8. Section 6.4 – The participating company is required to keep the customer informed of the progress of the response to the complaint. 9. Section 6.6(c) - The participating company is required to respond to a customer’s dispute within 15 business days provided all

necessary information has been received and all investigations have been completed.

10. Section 6.8 – The participating company is required to keep the customer informed of the progress of the review of their dispute at least every 10 business days.

The participating company informed FOS that the significant breach persisted for several months and was caused by:

 Growth in business;

 Seven storm events over a 10 month period impacting on claim and complaint volumes;

 An unusually high level of claims staff turnover;

 Staff inexperience; and

 Poor communication.

The participating company acknowledged that customers experienced delays in claims and complaints handling. It apologised to customers for any inconvenience and frustration caused by the delays. The quality of decision making remained unaffected.

In order to address the significant breach, the participating company conducted a number of process reviews which led to process improvements aimed at removing claims backlogs and sustaining future levels of performance through:

 Ensuring internal service standards match or exceed the Code's standards through daily monitoring and pro-active management of outstanding diary tasks including forecasting.

 Restructuring of operational functions and reporting lines.

 Increasing staffing levels.

 Increasing specialisation to enable fast-tracking and timely response on claims.

(25)

 Increasing focus on resolving complaints and disputes internally.

 Improving training for IDR staff and arranging for senior staff to review all IDR decisions and responses.

 Monthly meetings between IDR teams and executive management.

 Senior IDR managers and executive management reporting on complaints handling to the Board and/or Board Audit Committee.

 Developing and implementing a Code compliance monitoring methodology to better cover Code standards, including implementing an automated Code compliance reporting tool.

 Performance monitoring by claims and IDR staff, and Risk and Compliance.

4.2.3 Non-compliance outcomes identified by participating companies6

For the first time, participating companies provided data to FOS about Code breaches identified during the year through their internal breach reporting and monitoring programmes. The data excludes breaches identified by FOS or significant breaches of the Code reported by participating companies to FOS - see Appendix C.

Section 7.27 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. The requirement to self-monitor compliance extends to a participating company’s authorised representatives and/or service providers, where they are utilised.

Participating companies may monitor compliance with the Code through a number of mechanisms including:

 Customer feedback through surveys and complaints;

 Independent internal audits and monitoring carried out by a participating company’s risk and compliance specialists;

 Independent audits conducted by external auditors;

6

Refer to Appendix C.

7

(26)

 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).

 Use of due diligence reporting tools to monitor and report on issues, breaches, suspected breaches and non-compliance. Twenty-two participating companies identified a total of 1,879 Code breaches consisting largely of:

 886 breaches of section 2 – the standards that apply to the initial enquiry, buying of insurance; and renewal of cover, and the standards for employees and authorised representatives when selling participating companies’ products.

 727 breaches of section 3 – the standards that apply to claims; the standards for employees and service providers for claims handling; and the standards for customers and third parties in financial hardship.

 263 breaches of section 6 – the standards that apply to internal complaints and internal disputes handling procedures. The most frequently breached sections, together with examples, are discussed below.

Breaches of section 2.1.4

Participating companies identified 354 breaches of section 2.1.4 which requires a participating company to conduct its sales process in a fair, honest and transparent manner.

Example 1: A participating company reported that its authorised representatives were unable to comply with section 2.1.4 due to relevant information being omitted from customer policy documents. It contacted each affected customer about the error and provided them with the missing information, and offered a refund.

The participating company also addressed the breaches with the relevant authorised representatives by providing counselling and/or additional training. In some cases, the participating company determined it was appropriate to terminate its contract with the authorised representative. Example 2: A participating company’s authorised representatives were unable to comply with section 2.1.4 due to a failure to provide disclosure documents to customers. As a result, the participating company:

(27)

 Contacted the relevant authorised representative to try to locate the missing document;

 If required, contacted each affected customer to determine whether they had received the original document; and

 If required, forwarded a replacement document to each affected customer.

The participating company provided counselling or remedial training to the relevant authorised representatives, and in some terminated its contract with the authorised representative.

Breaches of section 2.2

Participating companies identified 435 breaches of section 2.2 which requires a participating company to refund the balance of any money owed to a customer within 15 business days, following cancellation of the policy by the customer.

Example 1: A participating company was unable to comply with section 2.2 due to a shortage of resources within the area responsible for processing policy refunds, during a two week period. The participating company addressed this by:

 Finalising refunds as quickly as possible;

 Providing a written apology to each affected customer;

 Providing specific training to staff involved in processing refunds; and

 Sending a communication to staff responsible for dealing with customer queries, about the expected turnaround time applicable to policy refunds.

Example 2: A participating company identified a number of breaches of section 2.2 due to a system error. Refund cheques were sent to affected customers; the error was identified and the system fixed.

(28)

Participating companies identified 105 breaches of section 3.2.1 which requires a participating company to notify the customer of the detailed information it requires to make a decision on the claim; if necessary, appoint a loss assessor/loss adjuster; and provide an initial estimate of the time required to make a claim decision, all within 10 business days of receiving a claim. This standard applies to all claims where further information, assessment or investigation is required.

Example 1: A participating company was unable to comply with the timeframes noted in section 3.2.1 due to the impact of catastrophes on resources. In response to this issue, the participating company implemented tracking reports and re-allocated resources to deal with non-catastrophe claims and closely monitored claims handling timeframes.

Example 2: A participating company did not notify a customer of the information that it required to make a decision on the customer’s claim within 10 business days of the claim being lodged. As a result, the customer contacted the participating company to remind it that they were still waiting for the claims officer to contact them. The claims officer was directed to contact the customer and further coaching was provided.

Participating companies identified 235 breaches of section 3.2.3 of the Code which requires a participating company to keep a customer informed of the progress of their claim every 20 business days.

Example 1: A participating company was unable to comply with section 3.2.3 during a six week period. It responded to this issue by introducing process changes and a more robust approach in managing claims handling time frames.

Example 2: A participating company was unable to comply with section 3.2.3 due to increased workloads caused by the impact of recent storm events on resources, which affected time frames for other claims. It undertook a review to ensure that processes were adequate and provided coaching to claims staff to reinforce the Code’s requirements.

Breaches of section 6.2

Participating companies identified 190 breaches of section 6.2 which requires a participating company to respond to complaints within 15 business days, provided it has all necessary information and completed its investigation.

(29)

Example 1: A participating company failed to comply with section 6.2. The participating company contacted affected customers and advised them that their complaint would be promptly reviewed by its complaints officer. It had incorrectly concluded that it had 45 days8 to respond to the complaint, overlooking the Code’s requirements that it could not exceed 15 business days when responding to a complaint9

(and that it could not take longer than 15 business days to respond to a dispute10).

Example 2: A participating company was unable to comply with section 6.2 due to staff resignations and absenteeism. It responded by employing temporary staff until permanent employees could be found.

8

Section 6.10 of the Code provides as follows: If we are not able to resolve your complaint to your satisfaction within 45 days (including both the complaint and internal dispute resolution process referred in this section of the Code), we will inform you of the reasons for the delay and that you may take the complaint or dispute to our External Dispute resolution scheme even if we are still considering it (and provided the complaint or dispute is within the scheme’s Terms of Reference). We will inform you that you have this right and details of our External Dispute Resolution scheme before the end of the 45-day period.

9

Section 6.2 of the Code provides: We will respond to complaints within 15 business days provided we have all necessary information and have completed any investigation required.

10

Section 6.6(c) of the Code provides: If you tell us you want our response reviewed, we will: c) respond to the dispute within 15 business days provided we receive all necessary information and have completed any investigation required.

(30)

5. Policies, Claims and Internal Dispute Resolution Data

The Code requires participating companies throughout Australia to provide an annual report to FOS on their compliance with the Code. Participating companies also submit various data to FOS about their general insurance products, both commercial and personal, on a class by class basis. The data are detailed in Appendix D and cover:

 Policies: New business and renewals during a 12 month period ending 30 June 2010 (this year);

 Claims;

 Rejected claims; and

 Internal Dispute Resolution (IDR) outcomes.

Other than the classes of insurance noted below, the Code extends to all classes of general insurance. These are the classes of insurance that are specifically excluded by the Code:

 workers compensation;

 marine insurance;

 medical indemnity insurance11;

 compulsory third party insurance including where there is linked driver protection cover;

 reinsurance;

 life and health insurance products issued by life insurers or registered health insurers; and

 policies of insurance issued under a co-insurance arrangement where one or more of the insurers has not adopted the Code.

11

(31)

When comparing data to the previous reporting year, it is important to keep in mind that FOS relies on participating companies to provide accurate data about policy numbers, claim numbers and rejected claim numbers, and internal dispute resolution statistics. FOS’ observations reflect the data that has been submitted by all participating companies.

(32)

5.1 Policies: Total New General Insurance Business and Renewals Data

12

5.1.1 Policies: All Classes of Insurance Business

There were 35,999,288 General Insurance policies issued during this year, consisting of 30,776,474 (85%) personal insurance policies, and 5,222,814 (15%) commercial insurance policies. The policy numbers reported by participating companies has fallen 1% compared with the data provided for the previous year. The fall in policy numbers is due to a number of participating companies inadvertently understating or overstating some of their policy numbers for the previous reporting year ending 30 June 2009 for various reasons; and altering reporting parameters for policy numbers during this year, affecting the way in which risks are identified.

Chart B (below) shows that as a proportion of all new insurance business and policy renewals during this year:

 Personal Motor insurance represented 32% (11,426,336 policies);

 Personal Home insurance (consisting of Home Building & Contents combined; Home Building; and Home Contents) represented a total of 27% (9,944,010 policies);

 Personal Travel insurance represented 12% (4,343,278 policies); and

 Commercial Business insurance represented 5% (1,807,961 policies).

(33)

Chart B

Accident &/or Sickness 1% Aviation 0% Builders Warranty 1% Business 5% Caravan/Mobile Homes &/or Trailers 1% Consumer Credit 2% Contractors All Risks

0% Farm

1%

Home - Building & Contents combined 9% Home Building 9% Home Contents 9%

Industrial Special Risks 0% Liability 4% Marine 0% Pleasurecraft 1% Travel 12% Valuables 2% Personal Motor 32% Personal Other 6% Commercial Motor 2% Commercial Other 1%

All Classes of General Insurance - Policies: New Business & Renewals 2009/2010

Accident &/or Sickness Aviation

Builders Warranty Business

Caravan/Mobile Homes &/or Trailers Consumer Credit

Contractors All Risks Farm

Home - Building & Contents combined Home Building

Home Contents

Industrial Special Risks Liability

(34)

5.1.2 Policies: Personal Insurance Classes of Business

Chart C (below) shows that as a proportion of all new personal insurance business and policy renewals during this year, the three largest sectors consisted of Personal Motor insurance at 37% (11,426,336 policies); Personal Home insurance (consisting of Home Building & Contents, Home Building and Home Contents products) at 33% (9,944,010 policies); and Personal Travel insurance at 14% (4,343,278 policies).

Chart C

Accident &/or Sickness 1%

Caravan/Mobile Homes &/or Trailers

2%

Consumer Credit 3%

Home - Building & Contents combined 11% Home Building 11% Home Contents 11% Pleasurecraft 1% Travel 14% Valuables 2% Personal Motor 37% Personal Other 7%

Personal Classes of General Insurance Policies: New Business & Renewals 2009/2010

Accident &/or Sickness

Home - Building & Contents combined Home Building Home Contents Pleasurecraft Travel Valuables Personal Motor Personal Other

(35)

5.1.3 Policies: Commercial Insurance Classes of Business

Chart D (below) shows that as a proportion of all new commercial insurance business and policy renewals during this year, the three largest sectors consisted of:

 Business policies at 35% (1,807,961 policies);

 Liability policies at 25% (1,322,239 policies); and

 Commercial Motor policies at 14% (710,888 policies).

Chart D

Aviation 0%

Builders Warranty 8%

Business 35%

Contractors All Risks 1%

Farm 8% Industrial Special Risks

1% Liability

25% Marine

1%

Commercial Motor 14%

Commercial Other 7%

Commercial Classes of General Insurance Policies: New Business & Renewals 2009/2010

Aviation Builders Warranty

Business Contractors All Risks

Farm Industrial Special Risks

Liability Marine

(36)

5.1.4 Policies: Total New Business & Renewals - Comparison between 2008/2009 and 2009/2010

Chart E (below) shows that the volume of all new insurance business and policy renewals fell 1% overall compared with the previous year. The number of new and renewed personal insurance policies fell less than 1%, while the number of new and renewed commercial insurance policies fell 3%. As highlighted earlier, the fall in volume was due to several participating companies inadvertently understating or overstating some policy data during 2008/2009 and/or changing reporting parameters for policy numbers during 2009/2010.

Chart E

0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000

Grand Total Total Personal Total Commercial 35,999,288

30,776,474

5,222,814 36,371,082

30,972,178

5,398,904

All Classes of General Insurance Policies: New Business & Renewals Comparison between 2008/2009 & 2009/2010

2009/2010 New Business & Renewals

2008/2009 New Business & Renewals

(37)

5.2 Claims and Rejected Claims Data

13

5.2.1 Claims - All Classes of Insurance:

Participating companies received 3,872,618 claims of which 3,804,894, or 98%, were accepted. A total of 67,724 claims, or 2% of claims, were rejected - see Chart F below. Claims consisted of 3,308,728 (85%) personal insurance claims; and 563,890 (15%) commercial insurance claims.

Chart F

13

Refer to Appendix D and Charts F- L.

98% 2%

All Classes of General insurance - Accepted and Rejected Claims - 2009/2010

Accepted Claims

(38)

5.2.2 Claims: Commercial Insurance Classes

Participating companies accepted liability for 558,506 commercial insurance claims. Chart G below shows that the largest number of commercial insurance claims arose from Commercial Motor insurance policies with 232,777 claims, representing 41% of all commercial claims. Liability was accepted for more than 99% of Commercial Motor claims and Aviation claims.

Chart G

Aviation

(<1000 claims) Builders Warranty 1%

Business 33%

4% Liability

7% Marine

1% Commercial Motor

41%

Other 4%

Commercial Classes of General Insurance - % of Claims by Class 2009/2010

Aviation

Marine Motor Other

(39)

5.2.3 Claims: Personal Insurance Classes

Appendix D shows that 3,308,728 personal insurance claims were lodged during this year with 3,246,388, or 98%, reported as being accepted. Chart H below outlines the proportion of personal insurance claims on a class by class basis, noting the following:

Accident and/or Sickness Insurance: 64,397 claims were made against Accident and/or Sickness insurance policies, representing only 2% of all personal insurance claims. Participating companies accepted liability for 98% of these claims.

Consumer Credit Insurance: Claims arising from Consumer Credit policies comprised less than 1% of personal insurance claims. Participating companies received 26,219 Consumer Credit claims and accepted liability for 87% of these. This class of personal insurance business experienced the highest proportion of rejected claims during the year.

Home Insurance: A total of 969,205 claims were lodged against Home insurance policies, representing 29% of all personal insurance claims and consisting of:

 289,529 Home Building & Contents claims – liability was accepted for 97% of these claims.

 443,588 Home Building claims – liability was accepted for 97% of these claims.

 236,088 Home Contents claims – liability was accepted for 98% of these claims.

Motor Insurance: Typically, the largest number of personal insurance claims arose within the Motor insurance portfolio with 1,732,499 Motor insurance claims, representing 52% of all personal insurance claims. This class of insurance experienced the highest rate of accepted claims, with participating companies accepting liability for 99.7% of Motor insurance claims.

Travel Insurance: 184,035 Travel insurance claims were lodged, comprising 6% of all personal insurance claims and with liability accepted for 91% of these claims.

(40)

Chart H

Accident &/or Sickness 2%

Caravan/Mobile Homes &/or Trailers

1%

Consumer Credit 1%

Home - Building & Contents combined

9%

Home Building 13%

Home Contents 7%

Motor 52% Other

8%

Pleasurecraft 0%

Travel 6%

Valuables 1%

Personal Classes of General Insurance - % of Claims by Class 2009/2010

Accident &/or Sickness

Home - Building & Contents combined Home Building

Home Contents Motor

Other

Pleasurecraft Travel Valuables

(41)

5.2.4 Claims – Comparison between 2008/2009 and 2009/2010

Chart I (below) shows that compared with the previous year the number of insurance claims lodged across all classes of business rose 7%; the number of personal insurance claims rose 9%; and the number of commercial insurance claims fell 6%. Undoubtedly the most significant contributing factor to the overall increase in general insurance claims during this year has been Australia’s extreme weather events.

Chart I

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000

Grand Total Total Personal Total Commercial

3,872,618

3,308,728

563,890 3,623,255

3,020,382

602,873

All Classes of General Insurance - Claims Comparison between 2008/2009 & 2009/2010

2009/2010 Claims 2008/2009 Claims

(42)

5.2.5 Rejected Claims – Comparison between 2008/2009 and 2009/2010

Chart J (below) shows that when compared with the previous year, although the number of general insurance claims lodged during this year increased, the proportion of rejected general insurance claims fell 7%, and rejected personal insurance claims fell by 9%. Although the proportion of rejected commercial insurance claims jumped 21%, participating companies accepted liability for more than 99% of all commercial insurance claims, consistent with the outcome during the previous year.

Chart J

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

67,724

62,340

5,384 72,833

68,371

4,462

All Classes of General Insurance - Rejected Claims Comparison between 2008/2009 & 2009/2010

2009/2010 Rejected Claims

(43)

Chart K below shows that there was a 47% drop in the number of rejected Motor insurance claims, with 4,805 rejected claims compared with 8,988 rejected claims during the previous year. The number of rejected claims arising from Valuables insurance products fell 82%, with 403 rejected claims compared with 2,262 rejected claims during the previous year. There was a 93% increase in the number of rejected Pleasurecraft insurance claims this year arising from 214 rejected claims, compared with 111 rejected claims during the previous year.

Chart K

Accident &/or Sickness, 29% _{Caravan/Mobile Homes &/or}

Trailers, -14% Consumer Credit, 3% Home, -4%

Personal Motor, -47%

Personal Other, -4% Pleasurecraft, 93%

Travel , 6% Valuables, -82%

Personal Classes of General Insurance: % of Change in the number of Rejected Claims Comparison between 2008/2009 & 2009/2010

Accident &/or Sickness Caravan/Mobile Homes &/or Trailers Consumer Credit Home

Personal Motor Personal Other Pleasurecraft Travel Valuables

(44)

Chart L below shows that the increase in the number of rejected commercial insurance claims is largely due to a 376% increase in the number of rejected Farm insurance claims. This year 748 Farm insurance claims were rejected, compared with 157 claims rejected during the previous year. Commercial Motor experienced a 65% increase in the number of rejected claims, with 503 claims rejected this year, compared with 305 claims during the previous year. There was a 200% increase in the number of rejected Aviation insurance claims this year, arising from the rejection of six claims, compared with two rejected claims during the previous period.

Chart L

Aviation, 200%

Builders Warranty, -50%

Business , 10%

Commercial Motor, 65% Commercial Other , -50% Contractors All Risks, -6%

Farm, 376%

Industrial Special Risks 35%

Liability, 21% Marine, -45%

Commercial Classesof General Insurance: % of Change in the number of Rejected Claims Comparison between 2008/2009 & 2009/2010

Aviation

Commercial Motor Commercial Other Contractors All Risks Farm

(45)

5.3 Internal Dispute Resolution Data

14

5.3.1 Introduction

Section 6 of the Code details standards of service for the handling of complaints and disputes both internally ie through Internal Dispute Resolution (IDR), and externally through External Dispute Resolution (EDR).

The Code requires a participating company to make available to customers information about its complaints handling procedures when a claim is denied or in response to a complaint and/or dispute about any product or service it has provided. The Code also requires a participating company to respond to a complaint and a dispute respectively within 15 business days, and to notify customers of available EDR options at the conclusion of the IDR process.

FOS has jurisdiction to deal with General Insurance disputes that fall within its Terms of Reference. For further information about FOS go to www.fos.org.au.

14

(46)

5.3.2 IDR Outcomes

The General Insurance industry received 22,581 disputes during the 2009/2010 year and had resolved 22,643 disputes by 30 June 2010. As seen in Appendix D and Chart M (below) 21,209 disputes or 94% of all disputes were related to personal classes of general insurance, while the remaining 6% or 1,372 disputes, arose from commercial classes of general insurance. 7,559 disputes, or 33% of resolved disputes, were finalised in favour of customers (including third parties), while 15,084 disputes or 67% of resolved disputes, were finalised in favour of participating companies - see Chart N (below).

Chart M Chart N

94% 6%

Total Number of Disputes All Classes of General Insurance

2009/2010

Total Personal

Total Commercial

33%

67%

Disputes finalised in favour of Participating Companies and Customers

All Classes of General Insurance 2009/2010

Disputes finalsed in favour of customer

Disputes finalised in favour of Code member

(47)

5.3.3 Total Disputes - Comparison between 2008/2009 and 2009/2010

Chart O (below) shows that the number of disputes across all classes of general insurance rose to 22,581, 5% more than the number reported for the previous year. Of these, personal insurance disputes climbed 5% to 21,209, even though the number of rejected personal insurance claims fell when compared with the previous year. The number of commercial insurance disputes also increased, going from 1,189 disputes during the previous year to 1,372 disputes this year, up 15%. This is discussed further in paragraphs 5.3.5 and 5.3.6 below.

Chart O

0 5,000 10,000 15,000 20,000 25,000

22,581

21,209

1,372 21,447

20,258

1,189

All Classes of General Insurance - Total Disputes

Comparison between 2008/2009 & 2009/2010

2009/2010 Disputes 2008/2009 Disputes

(48)

5.3.4 Total Disputes – Non-Claims Disputes and Claims Disputes, Comparison between 2008/2009 and 2009/2010

Chart P below shows that while the number of disputes about general insurance claims, across all classes of insurance business, has remained relatively steady this year when compared with the previous year, the number of claims disputes has jumped 32%. The increase in non-claims disputes has occurred entirely within personal general insurance classes, largely due to disputes about buying insurance, with 5,336 disputes recorded about buying insurance compared with 3,814 disputes recorded during the previous year. In addition, the number of disputes about commercial insurance claims increased 18%. This is discussed further in paragraphs 5.3.5 and 5.3.6 below.

Chart P 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000

Grand Total Total Personal Total Commercial 6,251 6,183 68 4,751 4,667 84 Non-Claims Disputes

Comparison between 2008/2009 & 2009/2010

2009/2010 Non-Claims Disputes 2008/2009 Non-Claims Disputes 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

Grand Total Total Personal Total Commercial 16,330 15,026 1,304 16,696 _15,591 1,105

Disputes about Insurance Claims Comparison between 2008/2009 & 2009/2010

2009/2010 Disputes about Insurance Claims 2008/2009 Disputes about Insurance Claims

(49)

5.3.5 Disputes about Commercial Insurance Products or Services

Chart Q below shows the spread of disputes across commercial insurance classes. Business insurance was the source of the largest number of disputes with 50% (680) of all commercial insurance disputes; 96% of Business insurance disputes were about claims. Commercial Motor insurance gave rise to 21% (286) of all commercial insurance disputes, with 98% of these about claims.

Chart Q

Aviation

0% _{Builders Warranty}

2%

Business 50%

4% Liability

7% Marine

1%

Commercial Motor 21%

Commercial Other 3%

Total Disputes - Commercial Classes of General Insurance 2009/2010

Aviation

Marine

Commercial Motor Commercial Other