This is the first in an occasional series on the 2020 General Insurance Code of Practice as the day[1] it becomes an integral part of the Australian insurance industry landscape draws closer.
The 2020 Code will significantly enhance the existing national framework which supervises and manages the relationship between insurers and their insured.
The National Framework
Insurance Policy
The central plank of this national framework is the insurance policy which is essentially a contract between the insured and the insurer.
Its terms (as informed by the principles of contract law) ensure that the contract works as smoothly as possible and impose consequences mirroring the contract (damages or specific performance) should there be a breakdown in those terms.
Legislation
Standing behind the contract is a comprehensive and, in some ways, unique statutory regime.
The jewel in that crown is the Insurance Contracts 1984 (Cth) which reaches both the operation of the contract (e.g., non-disclosure, third parties and non-compliance) and the conduct of the parties (e.g., duty of utmost good faith). The remarkable thing about this Act is that it can render the operation of the contract of insurance different from what its parties intended at that contract’s inception.
The statutory regime also tightly regulates the financial performance of insurers.
Code of Practice
The Insurance Code of Practice burst into life in Australia in 1994 and, through subsequent amendments, has evolved into a powerful statement of self-regulation. It is a statement by the Insurance Council of Australia about the standards of conduct to which its members will adhere.
Code Governance – Enforcement, Sanctions and Compliance
In his Executive Summary to the General Insurance Code of Practice 2012-2013 Independent Review Final Report, its author, Mr Ian Enright, wrote: -
Code governance emerged as the single most important overarching issue for my Review. It is essential for the Code to be set in a governance framework in which the governance body is independent, expert, informed and resourced. The framework must be visible and accountable. I have dealt with Code governance as the first issue because of its importance and because so many other issues and the approach in my Report and my recommendations are based on my recommended approach to Code governance.
One of the tenets of the 2014 Code is Code Governance - the mechanism by which insured or third-party beneficiaries can complain about any breach of the Code and sanctions which can be imposed if those breaches are not corrected.
The 2020 Code goes further. It amends the Code Governance in ways which gives the national framework even greater muscle. Those amendments include the following: -
Firstly, the 2020 Code will empower anyone to report a breach of the Code to the Code Governance Committee[2]. That places the Code well beyond anything which the contract of insurance or Insurance Contracts Act can do. They are limited to the parties to the contract and, in some instances, the third-party beneficiaries and regulators. The Code empowers anyone to complain.
Secondly, the 2020 Code will empower the Code Governance Committee to punish breaches of the Code rather than just failures to correct breaches.
Thirdly there is a wide range of sanctions which the Code Governance Committee can impose extending from taking particular action to compensating a party or paying a significant fine.
Key Point
As future updates will reveal, one can only have admiration for the changes that have been made to the Insurance Code and the work which it does to improve the perception of the insurance industry in Australia.
But the 2020 Code brings an impressive sting, and it is there that the real strength of the national framework will be seen.
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