Insurers that fail to meet the Insurance Council’s new code of practice will be “named and shamed”, ICA CEO Rob Whelan told the AILA conference.

He said exposure was “far more powerful than financial sanctions”, which the code would not include.

While the industry thought its original code was “pretty good”, it fell short when scrutinised after 2011’s natural disasters. Its opt-out clause during disasters was strongly criticised. “We hadn’t thought that through in terms of industry reputation,” Mr Whelan said.

It was “a shock to the industry to have such vitriol thrown at it, despite it doing a very good job of paying claims across a wide geographical area”.

ICA was now working on implementing “a gold standard code”. It would be dynamic, with continuous input into its function.

Ian Enright, who conducted ICA’s 2012 review of the general insurance code of practice, said a regulated entity “lives and dies by its reputation with customers”. Without community confidence, a code was “a waste of time”.

ASIC’s acting senior executive leader for deposit takers, credit and insurers, Tim Gough, said self-regulatory codes needed industry support and commitment, and consumer confidence. Codes were to complement the law, “unashamedly” fill regulatory gaps and clarify or raise standards. They were not aspirational or motherhood statements, but something to which industry could be accountable.

Mr Whelan said insurers sold “an intangible product, a promise, so we need consumer confidence”. The post-floods experiences identified a “trust gap” between expectations and delivery, but ICA was learning the lessons from those trials. Regaining consumer confidence would be “a slow build”.

Mr Enright said Australia, in the post-HIH era, had followed a prudential regulation path that made it more difficult to find “a proper place for self-regulation”. Originally prudential regulation governed capital and solvency – “the difference between can’t pay and won’t pay” – but it had now moved beyond the traditional realm into all regulated entities’ operations.

Mr Whelan agreed, saying prudential regulation had become “an all pervasive move into how companies manage risk” as Australia followed a global movement to greater regulation after the GFC.

 

Notify often, early

Notify early and often. That was the advice from Clayton Utz lawyer Fred Hawke in a separate AILA conference panel session on claims and circumstances with claims-made professional risk policies.

Mr Hawke said insurers needed “effective notification of a fact or circumstance that was sufficiently cogent that a future claim could have arisen from it”. Notification was not “a broker throwing the annual report on a table and saying ‘there’s notification of anything arising from that’”. Insureds and brokers should be specific. “Claims managers hate shopping list notifications.”

AIG senior technical claims adviser Brett Jordan said an ASIC statement or “litigation funders sniffing around” was “enough for me”.

He said “sometimes I like laundry lists. It gives me a better chance to protect the policy limit”. But he warned the law was unclear on who could get access to notifications. There was a danger a notification could become “a road map” for ASIC or litigation funders.

Jardine Lloyd Thompson’s André Louw, who moderated the session, said there was a risk the premium could go up after a notification, but the insured retained entitlement to cover. He said early intervention could minimise claim costs and legal representation should be agreed in advance. “Don’t wait until a circumstance or claim crystallises.”

Mr Hawke defined a claim as “a positive assertion of the legal right to damages”. It occurred when “someone holds you responsible for a loss and they expect you to compensate them”. Mr Jordan and Vero’s professional indemnity product manager Cathie Thompson were more pragmatic. They agreed a claim was defined by the policy wording.

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