Chapter 3 General Insurance Code of Practice
This chapter provides an explanation of the application, content and
history of the General Insurance Code of Practice (the Code). The chapter then examines
in detail the monitoring and enforcement measures available.
About the Code
The Code is a voluntary code written by the industry itself. The Code is
designed to operate in conjunction with the regulatory framework within
Australia that applies to the general insurance industry. It provides
guidelines for insurers regarding customer interaction and claim management. These
apply when selling insurance, dealing with insurance claims, responding to
catastrophes and disasters, and handling complaints. The Code applies
to all general insurance products except those expressly excluded.
The Code was first developed and introduced by the Insurance Council of
Australia (ICA) in 1994 and revised in 2005. The revised Code commenced
operation in July 2006. The ICA is required to review the Code every three
years, with an Independent Reviewer appointed to undertake this process. The
first review of the Code occurred in 2009 and was conducted by Mr Robert
The Code is monitored and enforced by the Financial Ombudsman Service
The Code contains a specific section on responding to claims in times of
catastrophes. According to clause 4.3 of the Code, the provisions can be suspended
during disaster events. Wesfarmers defended the inclusion of this clause,
... it is important to acknowledge that there are times when
physically [claims] cannot be dealt with within the time frames and there needs
to be some form of leeway built into the code.
Due to this clause, consumers are not protected by the Code’s provisions
in the aftermath of disaster events. However, the Code provides that participating
n respond to
catastrophes and disasters in a fast, professional and practical way and in a
compassionate manner; and
n establish internal
processes for responding to catastrophes and disasters.
Additionally, there is a provision allowing for a review of claims
resulting from a catastrophe or disaster.
The Code has provisions for claims processing, internal and external
dispute resolution. These apply in normal circumstances, i.e. when a natural
disaster is not occurring.
There are time limits set for each discrete stage of claims processing,
such as when an assessor should be appointed. However, the time limits add up
to a substantial block of time, with no maximum limit imposed on the entire
claims processing process.
Under the Australian Securities and Investments Commission (ASIC) Regulatory
Guide 165, a 45 day timeframe is imposed on the internal dispute resolution
process. The Code sets out more detailed obligations for this requirement.
The Code also requires each participating company to have appropriate
systems and processes in place to enable it to monitor its own compliance with
the Code. This can consist of customer
surveys as well as internal and external audits.
According to the Code, employees of insurers should conduct their
services in an honest, efficient, fair and transparent manner. Insurers must
train employees adequately so they can carry out their claims handling tasks
and functions competently. Additionally, employees should be trained in
insurance and consumer protection law, as well as requirements of the Code.
Due to clause 4.3 of the Code, insurers have no obligation to meet these
guidelines when natural disasters occur.
The Insurance Council of Australia advised the Committee that the
Insurance Council Board has agreed in principle to a number of draft changes to
the Code for implementation no later than 1 July 2012.
The changes have been made in response to criticisms of the handling of insurance
claims in the aftermath of recent catastrophes. At the time of writing, in
February 2012, the draft changes outlined below were still under consideration
by the Insurance Council Board:
n The provision which
provides for a suspension of the Code during a catastrophe or disaster will be
n A time limit of four
months will be imposed for a claim to be settled. If no decision is forthcoming
within that time, the insurer will ask the insured whether they would like to
access an internal dispute resolution process. This provision will not apply
where exceptional circumstances exist such as fraud, the insured unreasonably
failing to supply documents, or where an ‘extraordinary catastrophe or
disaster’ is declared. The Insurance Council Board stated that it will consult
with stakeholders such as the Australian Government, ASIC, FOS and consumer
advocates to develop the criteria for such a declaration.
n There will be a
‘right to claim’ in the sense that an insurer will ask policy holders if they
would like to lodge claims and then explain that the question of coverage will
be fully assessed. If a claim is denied, consumers will be provided with
written reasons and information about complaints handling procedures.
n A time limit of 12
weeks will be imposed on the provision of external expert reports. Consumers
will be able to access external expert reports used to decide the claim.
Insurers will need to provide copies of these reports if requested within 10
n Staff will be trained
to deal with customers professionally. Training will also be conducted with
regard to consumer protection laws, product knowledge, the requirements of the
Code and understanding the consumer situation particularly in the aftermath of
a catastrophe or disaster.
It is not clear if all provisions of the Code, or just the proposed
four-month time limit for determining claims, are exempt in ‘exceptional
Monitoring and enforcement of the Code
Under the Code, FOS is responsible for monitoring compliance.
The Code Compliance Committee within the ICA is responsible for imposing and
enforcing sanctions. The Code Compliance Committee consists of a consumer
representative appointed by FOS, an industry representative appointed by the
ICA and an independent Chair jointly appointed by FOS and the ICA. Insurers
also have duties to provide information and report to FOS.
Although FOS is funded by insurers, it must remain accessible,
independent, fair, accountable, efficient and effective in order to maintain its
status as an ASIC-approved external dispute resolution scheme.
Also, FOS asserted that membership levies are low and exist mostly to cover
administrative costs and that the user-pays nature of FOS encourages the
internal settlement of disputes.
There are specific provisions in the Code detailing how monitoring and
enforcement activities are to be conducted.
FOS receives and investigates allegations about Code breaches and
determines whether a breach has occurred. FOS will monitor the completion of
corrective action and determine whether corrective actions have been
FOS reports failure to correct breaches to the Code Compliance Committee
within 10 business days of the agreed time frame. However, FOS must consult
with the insurers as to corrective action and time frames.
FOS produces an annual public report on participating insurers’
compliance with the Code. The report contains aggregated industry data and
consolidated analysis on compliance. FOS supplies aggregated breach data on a
quarterly basis to the Code Compliance Committee.
Alleged breaches are reported to FOS mostly by FOS staff (59 per cent)
and decision makers (19 per cent) with some complaints being registered from
consumers/businesses (18 per cent) and a small number from community legal
centres (three per cent) and private lawyers (one per cent).
According to FOS statistics, in 2009–10, there were 314 instances of
non-compliance with the Code, 42 per cent down on the previous year. FOS
conducted 124 Code compliance reviews during the year, identifying 68 Code
breaches across 23 companies. This means that one third of the 59 participating
companies breached the Code. However, all breaches were addressed by
participating companies to FOS’ satisfaction.
In 2009–2010, FOS investigated 616 alleged breaches of the Code arising
from 119 matters across 30 companies. That is, half of all participating
companies were alleged to have breached the Code.
Of particular relevance to the Committee’s inquiry is the fact that
there were 96 breaches of the Code which related to the conduct of claims
handling. The clauses involved require claims handling to occur in a fair,
transparent, timely, efficient and honest matter.
Thus, such complaints constituted a third of all breaches of the Code.
The investigations show that the reasons for non-compliance are varied
n misunderstanding how
a service standard applied to general insurance operations;
n underestimating the
time required to implement the service standards;
n applying the service
standards in practice but failing to document the underlying compliance
requirements appropriately or at all;
n changes made to
processes/systems/documents without the knowledge of compliance personnel;
concluding that compliance measures were sufficient;
n failing to provide
adequate training; and
n failing to adhere to
The Code requires participating companies to report an identified
significant breach of the Code to FOS within 10 business days.
A ‘significant breach’ is one that is deemed to be significant with reference
n similar previous
n adequacy of
arrangements to ensure compliance with the Code;
n the extent of any
consumer detriment; and
n the duration of the
In 2009–10, FOS received four reports of significant breaches of the
Code relating to the timeliness of claims settlements. These reports related to
three companies, with three ‘serious’ breaches related to the timeliness of
There are common themes. Delays occurred because of an unexpected
increase in the number of claims, and a resulting lack of resources to address
them. The first company reported that customers were advised about the delays
and urgent/priority claims were dealt with in time. For the second company,
absenteeism, high staff turnover and technology problems contributed to delays.
The third company cited poor communication as a factor, but asserted that
although delays were experienced by customers, the quality of decision making
Corrective actions included:
n reviewing outstanding
claims for action;
n agreeing with
customers on alternative timeframes of claims assessment;
n recruitment and
secondment of staff as well as requesting staff to work overtime in order to
deal with the increased workload;
n increasing and
improving compliance monitoring, including by:
and enforcing more stringent internal standards; and
staff to compliance work;
n developing new claims
systems to better manage workflow;
forecasting tools to enable better strategic management and allocation of
n requiring workers to
specialise to enable fast tracking and more timely responses; and
n improving internal
Responsibility for monitoring the Code lies with FOS, which has the
discretion to provide reports, recommendations and information to any
regulator, such as ASIC, or a disciplinary body.
FOS must identify ‘systemic issues’ and refer these to the relevant
financial services provider for remedial action. These issues can arise with
respect to the Code. FOS must obtain a report from the provider as to the
remedial action taken and continue to monitor the matter until a resolution is
achieved that is acceptable to FOS.
FOS must also report systemic issues to ASIC in accordance with
obligations under RG 139. FOS must report all serious misconduct to ASIC and ASIC
can then take regulatory action if necessary.
If insurers fail to meet their obligations under the Code, the Code
Compliance Committee can impose sanctions. 
Where FOS has reported a failure by an insurer to correct a Code breach,
the Code Compliance Committee may dismiss the FOS findings or request FOS to
reconsider further consultation with insurers. The Code Compliance Committee
will ‘consider any response by [insurers] before making a final determination
and imposing sanctions.’
The sanctions for a breach of the Code are minimal. They are:
n a requirement that
particular rectification steps be taken by an insurer within a specified
n a requirement that a
compliance audit be taken;
n publication (‘naming
and shaming’) of the insurer’s non compliance.
Mr Price, an Ombudsman of FOS, noted that these sanctions had not been
utilised during his time there since 2004.
Insurers must have appropriate systems and processes in place to enable
FOS to monitor compliance with the Code. They also prepare an annual report to
FOS on Code compliance and have a governance process in place to report on
compliance to internal Boards of Directors or executive management.
FOS collects and publishes information on the insurance industry.
However, insurers remain anonymous, both when FOS reports to the public
in its compliance reviews and when FOS exchanges information with ASIC. This
means neither consumers nor the government have information about which
companies are breaching the Code or have been alleged to breach the Code.
Ultimately, disputes remain private.
A voluntary code of practice is less effective than a mandatory code.
Enforcement can be difficult. Self-regulation in general is only effective
under good accountability, compliance, and enforcement.
The Insurance Law Service (ILS) opposes the voluntary nature of the Code,
There seems to be little incentive to comply with the Code as
there are no consequences of the failure to do so. 
The insurance industry views their compliance as being satisfactory.
Wesfarmers assured the Committee that they take the Code ‘seriously’.
BT Financial Group, which includes Westpac, said that they took the:
... strong view that you have to abide by the code regardless
of whether you are dealing with a catastrophe or not.
Insurance Australia Group told the Committee the standards that they set
internally are higher than those that are prescribed by the Code.
Additionally, Wesfarmers noted:
Our claims people are always aware that they have obligations
under the code, whether during catastrophe events or not.
Legal aid groups dealt with many clients making insurance claims in the
aftermath of the 2010–11 extreme weather events and were thus in a position to
assess the operation of the Code in that context. These groups regarded the
Code as being ineffective.
Ms Karen Cox, Coordinator, Insurance Law Service, Consumer Credit Legal
Centre (NSW) Inc., described the Code as setting ‘an incredibly low standard.’
The ILS commented at length that:
... industry compliance with the Code of Practice is poor.
The Code Compliance Monitoring is inadequate and ineffective. It has not led to
any improvements that ILS can see in practices. The Code does not represent
best practice which is one of the main purposes of having a Code.
Unfortunately, the General Insurance Code of Practice represents one of the
worst operating Codes in Australia.
Ms Bridget Burton, Coordinator, Caxton Legal Centre, criticised the Code
for being ‘completely inadequate’. She stated that it is
not designed to protect consumers after a disaster event and that it was
ineffective in protecting consumers after the extreme disaster events of 2010–11.
Ms Burton advocates for an enforceable instrument that has inbuilt
penalties and where consumers can seek penalties in their own right so they do
not have to go through ASIC, and which FOS itself can initiate.
Ms Jenny Lawton, of Victoria Legal Aid, said that ‘it is timely to
consider … strengthening the protections to consumers in this code’.
Mr Keith Oberin, Municipal Emergency Response Manager, Shire of Campaspe,
noted that many Campaspe residents felt that the Code was not adhered to by
Since the Code can be suspended during disaster events, this means that
consumers are not protected by its provisions in the aftermath of a disaster.
The Committee heard that some consumers did not feel well-treated by
insurance companies in the aftermath of the 2010-11 disaster events, suggesting
that insurers did not act compassionately or professionally, as required by
clause 4.2 of the Code. Consumers spoke of ‘frustration’ and ‘second class’
treatment. These sentiments were
echoed again and again by respondents to the inquiry survey.
ASIC raised a pertinent point in that while the industry is under an
obligation to deal with claims as effectively and efficiently as possible, to
have a sufficient workforce that is trained, skilled and available at all times
in case a disaster event occurs would involve significant cost and potentially
increase the cost of insurance overall.
In addition, ASIC commented on the time frames for claims processing.
If you want to put in a standard time frame for claims but
make it long enough to allow the management of big influxes of claims, then the
standard time frame is going to be higher. If you were going to have a
definitive time frame on natural disaster claims, you would certainly want to
have it as a separate thing to your standard time frame because, otherwise, you
would have to make your standard time frame longer. Whether you have that
longer time frame for a natural disaster event or whether you just allow
general flexibility and rely on the goodwill of the industry, their desire to
do the right thing and public pressure is really a matter for government, at
the end of the day.
Additionally, it does not appear that consumers are aware of the Code.
Legal aid groups were able to gauge consumer awareness of the Code in their
dealings with clients. The Victorian Legal Assistance Forum stated that:
... people generally have low levels of awareness around the
General Insurance Code of Practice and their rights to refer a disputed claim
to EDR [external dispute resolution] through the Financial Ombudsman Service.
This view was echoed by WA Legal Aid, who stated that people’s knowledge
of their rights in relation to the code of practice was ‘very limited’ and that
people were not aware of their rights to internal dispute resolution.
The ICA website contains a link to the Code, but the Code is not consistently
advertised on the websites of member insurance companies.
It follows that the low level of public awareness of the Code means that
few people will be aware of breaches and report them to FOS. This diminishes
the effectiveness of the Code.
The Committee finds the voluntary Code very unsatisfactory and with
scant regulatory effectiveness. The voluntary nature of the Code makes the
instrument inherently less effective than a mandatory one.
particular, the Committee is of the strong opinion that the clause suspending
the Code during disaster events is unmerited. The suspension of the Code robs
consumers of protection when they are most vulnerable—as victims of natural
disasters that cause terrible damage not to only their homes and businesses,
but also affect their emotional state and personal relationships.
The Committee notes that the ICA has proposed changes to the Code that
take into account some of the concerns raised in the wake of recent natural
disasters. However, based on the findings of this inquiry, the Committee
considers that they do not go far enough. The proposed revisions to the Code
still include a caveat that the Code can be disregarded in the event of a
catastrophe so designated by the ICA. The Committee recognises that in times of
disasters there will greater demands placed on the industry’s resources;
however, the industry needs to factor such considerations into its business
The Committee was alarmed at the lack of consumer awareness surrounding
both the existence of the Code and its exact provisions. The lack of knowledge
was prevalent across Australia, even amongst individuals for whom it would be
useful or necessary to have such knowledge. This speaks again to the
ineffectiveness of the Code as a regulatory instrument and a failure of the
insurance industry and FOS to inform consumers.
In the wake of negative media attention and disgruntled messages in the
front yards of affected clients, the reputation of the industry has taken a
hit. The industry needs to regain credibility and consumer confidence. It is
not the role of the Australian Government to promote consumer awareness and
confidence; rather the industry must assume responsibility for improving
consumer perception. The industry can begin to restore its integrity by raising
awareness of the Code and of consumer rights.
Later in the report, the Committee makes recommendations to the
Australian Government for regulatory reform of the insurance industry. To
address consumer awareness of the Code and consumer rights, the Committee makes
the following recommendations to the ICA in the strongest terms possible. The
ICA should implement the following recommendations in 2012:
n review its procedures
and plan for effective contingency measures in times of disaster events;
n prominently advertise
the revised Code on the ICA website as well as all member websites; and
n conduct a consumer
awareness campaign with the purpose of increasing awareness of consumer rights
in relation to insurance.
Besides the Code being inherently unsatisfactory, the Committee views non-compliance
with the Code as a problem.
Many of the excuses for non-compliance are not compelling. It does not
appear that the Code is enforced rigorously within insurance companies. Insurers
have not established and maintained the systems necessary for Code
implementation. The multiple breaches and feeble reasons for non-compliance
reinforce the conclusion that the Code is an ineffective instrument of
The Committee understands that insurers suffered additional workload as
a result of the disaster events. However, although it may be reasonable for
different standards to apply when disasters occur, insurers must make clear the
benchmarks that they intend to adhere to. They are an industry which will be
called on during natural disasters. It is patently obvious that any reasonable
business plan must include adequate response procedures for natural disasters,
even those of a magnitude experienced in recent years. Australians plan for
disasters by taking out insurance coverage. We expect those insurance companies
to similarly have in place plans for disasters. After all, that is their
Further, many employees of insurance companies remain unaware of the
Code’s importance. This omission extends to all arms of the insurance business,
including operations, customer service and human resources, and should be
addressed by insurance companies through internal processes.
Finally, the sanctions for a breach of the Code are minimal and not
applied. The Committee notes that sanctions have not been imposed since at
least 2004, despite a myriad of natural disasters. In addition, of the nearly
700 respondents to the Committee’s survey, the overwhelming majority were
negative regarding the insurance industry. If the Code is to act as an
effective benchmark for performance, then it must be both rigorous and enforced.
Insurers also have too much input into corrective action and time frames for
implementing corrections in the event of a breach.
Preserving the anonymity of companies in compliance and reporting
activities greatly reduces the usefulness of data provided by FOS. Neither ASIC
nor members of the public can act effectively on anonymous data, such as taking
necessary regulatory action or making discerning consumer decisions.
The Committee makes a number of detailed recommendations in
Chapter 7 for the general insurance industry’s self-regulatory practices, how
these are embodied in the Code, and a broader regulatory context to monitor