The insurance industry has been able to fly under the regulatory radar, say consumer groups who hope the banking royal commission will shine a light on issues hurting consumers.
Poor sales practices including pressure selling of products that people don’t want or need, lengthy delays in settling claims and unfair contract terms are expected to be canvassed during a two-week public hearing focused on insurance that begins on Monday.
Consumers are often left with ‘claim shock’ when they discover their insurance policy does not cover what they expected, Consumer Action Law Centre senior policy officer Susan Quinn says.
‘People at a really difficult time in their life will suddenly find their insurance doesn’t cover them for what they thought it did and what they need it to cover them for,’ Ms Quinn told AAP.
Consumer advocates say many of the problems are due to gaps in laws, which mean unfair contract term protections do not apply to insurance contracts and the Australian Securities and Investments Commission lacks the power to regulate insurance claims handling.
‘The insurance industry has managed to fly under the radar with a lot of regulation for a long time,’ Ms Quinn said.
‘I would hope that part of what this royal commission does is throw light on the shadier areas that are causing devastation to people when they make claims.’
Ms Quinn and Financial Rights Legal Centre policy and advocacy officer Drew MacRae both criticised the self-regulation of claims handling by life and general insurers through industry codes of practice.
Mr MacRae said the codes themselves need to be strengthened along with the committees monitoring them.
‘They need to be better resourced, they need to have greater scope to be able to examine their industry and they need a complete regulatory toolbox with all forms of sanctions available,’ he said.
Mr MacRae expects the royal commission will uncover more shocking behaviour during the insurance hearing.
‘Even though we hear day in and day out a lot of these stories, we are still shocked by some of the really poor behaviour and we do expect the same thing will occur in the insurance round.’
Along with unfair contract terms, Mr MacRae also highlighted problems with policy definitions including out-of-date medical definitions.
‘No two definitions are alike between insurers so you don’t really know what you’re getting,’ he said.
The federal government plans to extend unfair contract term laws to cover life and general insurance.
It was consulting about removing the exemption for insurance claims handling practices from the definition of a financial service in the Corporations Act, but has put that work on hold until the end of the royal commission.
Ms Quinn said even if someone had adequate cover when their home was destroyed in a disaster, there can be lengthy delays.
She also pointed to cases of insurers paying cash settlements rather than repairing or rebuilding a home, which can be inadequate for someone to do the work themselves.