2012 General Insurance Code of Practice Aggregated Industry Data Report Overview of the Year

Transcription

1 2012 General Insurance Code of Practice Aggregated Industry Data Report Overview of the Year FOS Code Compliance and Monitoring Team 31 March 2015 FOS Code GI Code Annual Report Page 1 of 51

2 Contents 1 This Annual Report 4 2 About the 2012 General Insurance Code of Practice Year at a glance 6 4 Industry compliance initiatives 7 5 Our key observations 8 Buying insurance 8 Insurance claims 9 Withdrawn claims 9 6 How to read this report 10 7 Buying insurance 12 Industry overview 12 Industry trends 12 Industry compliance data 13 Tips for industry: handling significant breaches 15 8 Claims, declined claims and withdrawn claims 17 Industry overview 17 Withdrawn claims 17 Common reasons for withdrawal of claims 18 Industry trends 18 Motor 19 Home 20 Personal & Domestic Property 21 Travel 21 Residential Strata 22 Accident & Sickness 22 Consumer Credit Insurance 22 Industry compliance data on claims handling 22 Access to information used to deny a claim 23 Updating consumers on claim progress 23 Making a claim decision and notifying a consumer 24 Honest, efficient, fair, transparent and timeliness 25 Tips for industry 26 9 Financial hardship 27 Industry compliance data Responding to catastrophes and disasters 29 FOS Code GI Code Annual Report Page 2 of 51

3 Industry compliance data 29 Tips for industry Internal disputes 30 Complaints and disputes 30 Industry overview 30 Industry trends 31 Consumer Credit 32 Home and Motor 32 Personal & Domestic Property 33 Travel 33 Industry compliance data 34 Appendices 35 A: Current Code Participants 36 B: Consolidated aggregated industry data C: Aggregated industry data three year overview 40 D: Aggregated data industry-identified & reported breaches E: Insurance policies & F: Insurance claims & G: Declined insurance claims & H: Withdrawn insurance claims & I: Received internal disputes & J: Finalised internal disputes & K: Commercial insurance claims data L: Commercial insurance claims data by percentage M: Glossary of terms 50 FOS Code GI Code Annual Report Page 3 of 51

4 1 This Annual Report Welcome to our Annual Report for the reporting year It reviews our work on aggregated industry data and consolidated analysis of Code compliance under the 2012 General Insurance Code of Practice (the 2012 Code). We have undertaken this work in collaboration with 156 general insurers and Lloyd s Australia Limited coverholders and claims administrators from around Australia. We have outlined information and aggregated industry data reported to us by Code Participants (collectively called the industry for the purposes of this report) for the reporting year including: policies, claims, declined claims, withdrawn claims and internal disputes handled during , and industry-identified non-compliant activity and remedial actions. We have recorded Code Participants views on factors that may have influenced changes in the data since the previous reporting period. These considerations must be kept in mind when interpreting the data. The report also shares our experience of good industry practice and the initiatives of Code Participants to improve standards of practice and service in Identifying, selfreporting and remedying non-compliant activity with any code of practice is critical for a successful self-regulatory framework. We have encouraged a positive culture of selfreporting by Code Participants so that we can work with industry in a timely and responsive way to reduce risk and improve service delivery. We acknowledge the cooperation of Insurance Council of Australia (ICA) and Code Participants in this endeavour. We have previously reported on the outcomes of our key Code monitoring activities for , published in the appendices of the former Code Compliance Committee s Annual Report for You may view the report by clicking here. This is the final time we will publish an Annual Report of this nature. 2 From 1 July 2015, the new General Insurance Code Governance Committee will assume responsibility for publishing all annual aggregated industry data results under the 2012 and 2014 Codes. 1 See Schedule 2, Appendices, General Insurance Code of Practice, Annual Report of the Code Compliance Committee, available from 2 This Annual Report has been prepared by the Code Compliance and Monitoring Team, a separately funded business unit of Financial Ombudsman Service Limited to honour our reporting obligations under the 2012 Code. FOS Code GI Code Annual Report Page 4 of 51

5 2 About the 2012 General Insurance Code of Practice The ICA launched its General Insurance Code of Practice (the Code) in July 2005 and it became operational on 18 July The 2012 version came into effect on 1 July The ICA released a revised Code the General Insurance Code of Practice 2014 (the 2014 Code) on 1 July Code Participants have 12 months to complete their transition to the 2014 Code which will become operational on 1 July The 2012 Code covers service standards in several areas, broadly described in Diagram 1. Code Participants, their Employees, Authorised Representatives and Service Providers were required to comply with these standards during Diagram 1: The 2012 Code standards Section 2 Buying Insurance Section 3 Insurance Claims Section 4 Responding to Catastrophes & Disasters Section 5 Information & Education Section 6 Complaints Handling Procedures Section 7 Code Monitoring & Enforcement The 2012 Code covers most general insurance products, which are broadly categorised in Diagram 2. It does not apply to workers compensation, marine insurance, medical indemnity insurance 5, compulsory third party insurance, reinsurance, and life and health insurance products issued by life insurers or registered health insurers. 6 Diagram 2: Classes of general insurance covered by the 2012 Code Accident & Sickness Consumer Credit Home Motor Personal & Domestic Property Residential Strata Travel Personal Classes Business Contractors All Risks Farm Industrial Special Risks Liability Motor Other Commercial Classes 3 The new 2014 Code, the 2012 Code and earlier versions are available from 4 The 2012 Code, sections 1.6 and Medical Insurance Australia Pty Ltd, a medical indemnity insurer, has voluntarily adopted the Code. 6 The 2012 Code, sections 1.4 and 1.5. FOS Code GI Code Annual Report Page 5 of 51

6 Year at a glance The general insurance (GI) industry experienced modest growth in , with a small 7% increase in policy numbers and a corresponding 4% increase in claim numbers overall. Notably, industry reported moderate to significant increases in declined claims for Consumer Credit, Personal & Domestic Property, Residential Strata and Travel insurance products. Overall, the number of declined claims increased by 11%. At the same time, personal insurance disputes fell by 16% and personal insurance disputes about claims fell by 14%. We have aggregated the industry data in Appendix B and discussed it in Parts 7 11 of this report. A summary of the data is presented here and we have also included a three-year overview of key industry data in Appendix C. Employed 34,960 staff In addition, Code Participants engaged the services of 5,367 corporate Authorised Representatives, 11,145 individual Authorised Representatives, and 11,651 agents and independent contractors. 7 Issued 45,816,250 GI policies 7% 8 These policies consisted of 41,799,079 personal insurance policies (up 9%) and 4,017,171 commercial insurance policies (down 16%). See page 12 for more Declined 110,298 GI claims 11% These comprised 105,945 personal insurance claims (up 12%) and 4,353 commercial insurance claims (down 10%). See page 17 for more Reported 27,077 internal disputes raised by consumers 15% These consisted of 25,486 personal insurance internal disputes (down 16%) and 1,591 commercial insurance internal disputes. See page 30 for more Remedied 21 significant breaches These breaches affected at least 19,236 consumers and resulted in the payment of $767,659 (including interest) to consumers. Trained 35,805 people in Code obligations This consisted of 18,175 employees, 9,363 individual Authorised Representatives and 8,267 agents and independent contractors. Received 3,918,269 GI claims 4% These comprised 3,410,691 personal insurance claims (up 5%) and 507,578 commercial insurance claims (down 6%). See page 17 for more Withdrew 131,909 GI claims 24% These comprised 127,865 personal insurance claims (down 26%) and 4,044 commercial insurance claims (up 114%). See page 17 for more Internally reviewed 27,566 disputes 13% This resulted in 19,905 outcomes in favour of Code Participants and 7,661 outcomes in favour of consumers. See page 30 for more Identified, remedied and reported 5,612 Code breaches 9% Breaches were remedied in various ways, mainly through coaching or further training for employees and/or Authorised Representatives in processes and systems. See pages 12, 17, 27, 29 and 30 for more 7 Agents and/or independent contractors are individuals engaged in the distribution of a Code Participant s products and other services, but are not its Authorised Representatives. 8 In most cases data reported as a percentage will be rounded up/down to the nearest whole number. FOS Code GI Code Annual Report Page 6 of 51

7 4 Industry compliance initiatives Individual Code Participants introduced several initiatives to improve Code monitoring and reporting frameworks in These have strengthened compliance risk assessment processes and further embedded compliance requirements within their businesses. We have summarised these initiatives in Table 3. Table 3: Industry compliance initiatives in Compliance and risk reviews, reporting and analysis Individual Code Participants: Employed risk teams to provide specialised technical support in risk reporting, data analysis and risk management. Conducted independent operational reviews to strengthen Code compliance. Distributed online compliance questionnaires to all Authorised Representatives to identify and address compliance gaps. Reviewed systems and processes to ensure they comply with requirements of the 2014 Code. Appointed a compliance team to independently review and monitor business operations. Engaged legal counsel to review the 2014 Code s obligations and oversee complaints handling processes. Conducted monthly audits of each claims area to evaluate compliance. Staff development and training Individual Code Participants: Offered staff training via online modules and training packs on privacy and complaints handling, and provided training on the 2014 Code. Distributed complaints handling training packs to all customer service teams. Provided improved feedback on Code compliance issues to staff. Compliance and risk systems and processes Individual Code Participants: Continued to use internal and external auditing. Created an online database to review Code compliance in claims files; this included analysing trends, reporting on outcomes and tracking claims through to completion. Created new compliance-focused roles and teams covering customer service, quality assurance, risk management, compliance and coaching. Created risk operations and risk change teams to provide analytical and operational support and manage change. Developed formalised compliance frameworks. Embedded Code monitoring within compliance frameworks. Conducted internal and external reviews of their compliance framework, detailing compliance with relevant standards and requirements, and recommendations for improvement. Reviewed and updated breach and compliance policies and procedures, internal documents and templates to ensure they comply with the 2014 Code. Claims processing Individual Code Participants: Distributed a new daily claims monitoring report to claims staff detailing the status of each outstanding claim. Gained efficiencies in claims processing by allowing customers to lodge claims online. Introduced claim acknowledgement letters for policyholders, enabling them to review their claim and provide additional information. Redesigned the claims handling process to improve customer service by increasing communication channels to inform policyholders, clarifying staff roles and responsibilities, and taking a proactive approach to finalising claims. FOS Code GI Code Annual Report Page 7 of 51

8 5 Our key observations Data trends in particular classes of personal insurance such as Consumer Credit, Personal & Domestic Property and Travel, suggest to us that there is a gap between consumer expectations and how these products operate in practice. Industry needs to more fully understand the factors that underlie these trends and address those that may act as a barrier to informed decision making and consumer understanding about the features of the cover held within these classes of personal insurance. We will recommend to the General Insurance Code Governance Committee (GICGC) that it monitor these trends closely and report further in its Annual Report. We note that during for example in relation to: 1. Consumer Credit insurance products and services: Industry declined 3,791 claims, up 19% while the number of claims in this class fell 9% to 26,237. Consumers lodged 426 internal disputes with industry about products and services overall, up 25% and 368 internal disputes were about claims, up 28%. More than half of internal claims disputes concerned declined Consumer Credit claims, with 202 internal disputes. There was also a 21% increase in withdrawn claims in this class. 2. Personal & Domestic Property insurance products and services: Claims increased 23% to 441,116 and declined claims increased 72% to 32,930. At the same time consumers lodged 957 internal disputes about products and services overall, up 23%, including 786 internal disputes about claims, up 15%. Of the 786 internal claims disputes, 624 internal disputes were about a decision to decline a claim. 3. Travel insurance products and services: The overall number of internal disputes about products and services increased 15% to 2,399. Internal disputes about claims increased 40% to 2,334 and included 1,849 internal disputes about a decision to decline a claim. At the same time Code Participants declined 24,271 claims, up 21%. Buying insurance Industry reported 604 instances of non-compliance with obligations related to fairness and transparency in the buying and selling of insurance products to consumers in Most of these instances were due to employees or Authorised Representatives not following existing organisational procedures. FOS Code GI Code Annual Report Page 8 of 51

9 We recommend industry remain vigilant about compliance with these key obligations to ensure that consumers are dealt with appropriately and fairly when buying or renewing insurance products. We also encourage industry to foster a culture where organisational procedures are consistently applied in service delivery. Insurance claims Industry self-reported 3,835 breaches of the Code s claim handling standards in , representing 68% of all industry-identified non-compliant activity. The timeliness, fairness and transparency of claims handling processes and consumer access to key information about their rights when a claim has been declined are extremely important. The data suggests that industry performance in these areas needs to improve. Withdrawn claims We encourage Code Participants to record and report withdrawn claims data and reasons for withdrawal. Whilst the number of Code Participants who are able to report this type of information is growing (up from 61 to 71), some Code Participants are still unable to do so. Further, we are concerned that the withdrawn claims data received for is not as robust as it could be and seems to have been affected by systems limitations and other factors such as migration of data from old to new systems, or systems incompatibility. Despite more Code Participants reporting withdrawn claims data in , the number of reported withdrawn claims overall fell 24%. As a result, data about withdrawn claims in this report should be treated as indicative only. We believe that consistent and accurate recording of data and information about withdrawn claims is important and may further assist insurers to: Ensure that consumers have made informed decisions and that they understand the impact withdrawn claims may have on future claims or premiums, especially consumers no claim bonus (NCB) entitlements. Determine whether the incidence of withdrawn claims is influenced by product design and/or features or the way in which those particular products are sold to consumers. We note that the advice from industry that the obligation not to discourage consumers from lodging claims (section 3.4.3) may be a factor contributing to the incidence of withdrawn claims (and declined claims) seen in some classes of personal insurance. We suggest however that this reiterates our view of the importance of withdrawn claims data and the role it plays in understanding consumer behaviour. FOS Code GI Code Annual Report Page 9 of 51

10 6 How to read this report This report analyses two sets of data provided by industry: Aggregated industry data about policies, claims, declined claims, withdrawn claims, internal disputes and their outcomes across personal classes of insurance namely, Accident & Sickness, Consumer Credit, Home, Motor, Personal & Domestic Property, Residential Strata and Travel. We have provided a consolidation of the data in Appendix B, a three-year industry overview in Appendix C and further data in Appendices E to L. Aggregated industry-identified breach data which we have also summarised in Appendix D. To assist you to read this report we have provided a glossary of terms in Appendix M. The data and information has been described in this report under the following headings: Buying insurance Part 7 Claims, declined claims and withdrawn claims Part 8 Financial hardship Part 9 Responding to catastrophes and disasters Part 10, and Internal disputes Part 11. We have decided to focus attention on retail insurance products in this report. This is because: the primary focus of the 2014 Code is retail insurance products, and industry is currently transitioning to the 2014 Code and must be compliant by 30 June If you have a particular interest in the commercial data it is presented separately in Appendices B and Appendices E to L. We rely on Code Participants to: carefully review the data they submit to us to ensure its accuracy consult with us about data trends and explain the factors that may have influenced the data year on year, and let us know if there are any errors in previously submitted data. This is to ensure that the aggregated data published by us and in future by the GICGC is as accurate as possible and that data trends can be explained, either at an individual company or industry level. We do not independently audit the data submitted by Code Participants. FOS Code GI Code Annual Report Page 10 of 51

11 We note that variation in the data reported to us by industry occurs for a number of reasons including differing reporting frameworks from company to company. As a result, when reading this report please treat the data as conservative in nature and indicative only of current trends. For example, we note that nine Code Participants identified under-reporting errors in some of their data for Accident & Sickness, Consumer Credit, Motor and Personal & Domestic Property insurance products. We have amended the relevant data and all comparative data in this report is based on that amended data. We intend to consult further with industry and the GICGC to build a more consistent and robust reporting framework into the future. FOS Code GI Code Annual Report Page 11 of 51

12 7 Buying insurance Industry overview The overall number of general insurance policies issued or renewed in is presented in Table 4. The data shows that policy numbers increased slightly overall. Table 4: Personal and commercial general insurance classes overview of policy numbers in and variation against data Personal Classes of Commercial Classes of All Classes of General General Insurance General Insurance Insurance Number of policies 41,799,079 4,017,171 45,816,250 % variation from Up 9% Down 16% Up 7% Industry trends The top three classes of personal insurance products bought by consumers from Code Participants in were: Motor: 13,274,831 policies, accounting for nearly one third (32%) of all personal insurance policies issued/renewed in Motor includes products such as comprehensive motor vehicle cover and third party property damage. Home: 10,901,783 policies, comprising 26% of personal insurance products acquired by consumers. This category consists of cover for home buildings, contents, combined building and contents and residential landlord. Travel policies increased 43% to 7,392,489 policies (18% of personal insurance products). Code Participants have reported that the growth of Travel may have been due to factors such as the: o o o o Capturing of individuals covered by group policies. Capturing of policies that were previously excluded because premium was not payable. Commencement of new product distribution arrangements. Restructuring of other types of insurance products which resulted in their allocation to Travel. The data is presented in Table 5 and also shows that: Accident & Sickness policy numbers increased 135%. Code Participants have attributed the increase to the ability to identify individuals covered by group policies and allocation of restructured products previously in other classes. Personal & Domestic Property policy numbers have remained steady. It is the fourth largest class of personal insurance products and accounted for 15% of all personal FOS Code GI Code Annual Report Page 12 of 51

13 Personal Insurance Classes insurance products issued during This class includes products that provide cover for a diverse range of items ranging from pets to pleasure craft. Table 5: Personal classes of general insurance number of policies in and Residential Strata Consumer Credit Accident & Sickness 174, ,424 1,066,956 1,042,586 1,087,968 2,560,921 Policies Policies Personal & Domestic Property 6,689,125 6,481,045 Travel 5,172,203 7,392,489 Home 10,675,952 10,901,783 Motor 13,354,030 13,274, ,000,000 10,000,000 15,000,000 Number of Policies Industry compliance data Section 2 of the 2012 Code applies to the way in which Code Participants, their Employees and Authorised Representatives sell and renew insurance policies, and respond to consumer enquiries about insurance products. We expected that industry would continue to improve its ability to comply with fairness and transparency obligations in the buying and selling of insurance products during the reporting year. In industry identified and remedied 604 breaches of section 2, accounting for 11% of all non-compliant activity including: 153 breaches of industry s obligation to conduct sales processes in a fair, honest and transparent manner (section 2.1.4). 164 breaches of industry s obligation to ensure that employees and Authorised Representatives conducted their services honestly, efficiently, fairly and transparently (section 2.4.1). Most of these instances occurred because employees or Authorised Representatives did not follow procedures established by Code Participants to ensure compliance with their Code obligations. FOS Code GI Code Annual Report Page 13 of 51

14 Here are seven examples of how that non-compliance occurred. Examples of non-compliance with standards that apply to buying insurance 1. Some employees did not adhere to sales scripts that they were required to use when offering insurance products to consumers under a No Advice Model. A Code Participant identified this issue for example, during regular monitoring of sales staff by team leaders and its quality assurance team 2. Consumer complaints led to a Code Participant identifying that an Authorised Representative did not send policy renewal notices to some consumers at least 14 days prior to the renewal date. 3. A Code Participant s investigation of consumer complaints found that an employee had created two different types of policies for consumers without their permission. 4. An employee mistakenly copied and transferred policy exclusions from the wrong insurance product to an insurance product that it was selling online. 5. A team responsible for verifying the content of online material did not detect the error because it was unaware of the proposal to change the content of the product s Product Disclosure Statement (PDS). As a result of the error, consumers who bought the insurance product online had viewed a PDS that contained the wrong policy exclusions. 6. During monitoring of sales activities a Code Participant found that some Authorised Representatives had recommended consumers replace their existing cover without providing a suitable explanation for their recommendations. 7. Consumer complaints led to a Code Participant finding that several Authorised Representatives had issued policies that fell outside the scope of its underwriting guidelines. Code Participants that actively monitor compliance with their fairness and transparency obligations will be better placed to ensure that they deal with consumers appropriately and fairly when buying or renewing insurance products. Industry is also encouraged to remind employees and Authorised Representatives of the importance of adhering to procedures which enable industry to fulfil its compliance obligations. FOS Code GI Code Annual Report Page 14 of 51

15 We have described below the types of actions that individual Code Participants used to correct breaches of the standards that apply to buying insurance during Examples of actions taken to address non-compliance with standards applicable to buying insurance 1. Addressing concerns directly with consumers. This included issuing the correct policy documentation to consumers or refunding premiums and paying interest on the refunded amount where necessary. 2. Reviewing other transactions carried out by employees or Authorised Representatives to determine whether additional consumers were affected by non-compliant conduct. 3. Providing coaching, training and/or counselling to individual employees and Authorised Representatives. 4. Giving feedback to a team of individuals to further embed the correct procedure and remind them of Code compliance obligations. 5. Implementing quarterly reviews of insurance applications. 6. Withholding commission from Authorised Representatives and/or issuing a written warning to them. 7. Dismissing employees or terminating an Authorised Representative s contract. Tips for industry: handling significant breaches We handled five significant breaches of section 2 during the year. One significant breach involved a Code Participant who did not report the matter to us because it had: Characterised the underlying issue as an IT fault only. Wrongly concluded that it had complied with its obligation to conduct its sales processes in a fair, honest and transparent manner (section 2.1.4). The Code Participant applied the wrong premium discounts due to an error in its policy administration system. As a result, 6,651 consumers were overcharged when renewing their motor vehicle policies. It returned $644,892 in overpaid premiums to affected consumers including interest in remediation of the breach. In addition, the Code Participant repaired the technical fault in its policy administration system, audited the system to ensure it continued to operate effectively and introduced monthly monitoring to prevent a recurrence of the issue. FOS Code GI Code Annual Report Page 15 of 51

16 Our top three tips for industry from our observations in dealing with significant breaches are: 1. When restructuring incident reporting mechanisms and/or risk and compliance teams, ensure that you also maintain capacity to undertake timely investigation and reporting against Code obligations both internally and externally. 2. Be cautious when considering whether an issue should be characterised solely as an IT failure or human error. Consider the wider implications and impact of the issue on consumers, having regard to obligations to conduct sales processes and services in an efficient, fair, honest and transparent manner. 3. When considering whether an issue is a significant breach, ensure that you have fully documented your deliberations. We will ask for this when we are investigating a potential significant breach of the Code. FOS Code GI Code Annual Report Page 16 of 51

17 8 Claims, declined claims and withdrawn claims Industry overview The overall data is presented in Table 6. Table 6: Personal and commercial general insurance classes overview of number of claims, declined claims and withdrawn claims in and variation against data TYPE OF GENERAL Number of Claims INSURANCE PERSONAL CLASSES 3,410,691 Up 5% COMMERCIAL CLASSES 507,578 Down 6% ALL CLASSES 3,918,269 Up 4% When compared with the data shows that: Number Declined Claims 105,945 Up 12% 4,353 Down 10% 110,298 Up 11% Number of Withdrawn Claims 127,865 Down 26% 4,044 Up 114% 131,909 Down 24% In the number of claims lodged by consumers increased slightly: overall claims increased 4% while the number of personal insurance claims increased 5%. Code Participants declined more general insurance claims in This was influenced by a 12% increase in the number of declined personal insurance claims. At the same time, the ratio of declined personal insurance claims to personal insurance claims remained stable: 3.1% in compared with 2.9% in This means that Code Participants declined about 3 personal insurance claims for every 100 personal insurance claims. In the number of withdrawn claims reported by industry within all classes of insurance fell 24%, due to a 26% fall in the number of withdrawn claims within personal classes of insurance. Withdrawn claims We had two objectives when we began collecting data and information about withdrawn claims in : 1. That more Code Participants would report data about the number of withdrawn claims and the reasons claims were withdrawn. In this reporting period, 71 Code Participants provided data and information about withdrawn claims compared with 61 Code Participants for the previous period. While the number of Code Participants with a capacity to report this type of data and information continues to grow, more needs to be done. Some Code Participants remain unable to report any information about withdrawn claims due to incompatible or outdated data systems. 2. Encourage industry to develop a more efficient and accurate capacity to report this data together with the reasons claims are withdrawn, across all classes of personal insurance. While the number of Code Participants reporting this type of information FOS Code GI Code Annual Report Page 17 of 51

18 continues to grow, their capacity to report remains inconsistent and does not extend to all personal classes of insurance that they deal in. Common reasons for withdrawal of claims Industry identified some reasons for the withdrawal of that were common to one or more personal insurance classes such as: there was no cover in place the claim was investigated and subsequently withdrawn consumers wanted to avoid a formal claim denial consumers had lodged claims with the wrong insurer the value of the claim was low or less than the applicable excess consumers decided they no longer wanted to pursue their claims the event or incident did not cause any damage to the insured property consumers decided to repair the damage at their own cost the claim was not covered due to a policy exclusion or because the policy did not provide cover for the particular type of damage or loss, and consumers obtained a report which showed that the damage or loss was due to a cause that was not covered. Industry also noted that they have recorded some claims as withdrawn in circumstances where: consumers did not respond to requests for further documentation/information claims were opened in error due to duplication or lodgement against the wrong policy, and there was no further contact from claimants. Industry trends Table 7 outlines the number of claims, declined claims and withdrawn claims by class of personal insurance and includes the extent to which the data varied (by %) compared with The same data is presented in Chart 8 as: Claims by class as a proportion (%) of all personal insurance claims. Declined claims by class as a proportion (%) of all declined personal insurance claims. Withdrawn claims by class as a proportion (%) of all withdrawn personal insurance claims. FOS Code GI Code Annual Report Page 18 of 51

19 Table 7: Personal classes of general insurance number of lodged, declined and withdrawn claims in and variation against data Number of Claims PERSONAL CLASSES OF GENERAL INSURANCE Accident & Sickness 48,894 Down 16% Consumer Credit 26,237 Down 9% Home 714,768 Down 8% Motor 1,875,728 Up 9% Personal & Domestic 441,116 Property Up 23% Residential Strata 55,147 Down 20% Travel 248,801 Up 4% TOTAL 3,410,691 Up 5% Number of Declined Claims 1,553 Down 16% 3,791 Up 19% 36,213 Down 14% 6,282 Down 16% 32,930 Up 72% 905 Up 19% 24,271 Up 21% 105,945 Up 12% Number of Withdrawn Claims 1,064 Up 859% 1,126 Up 21% 52,423 Down 33% 63,578 Down 20% 5,235 Down 31% 159 Down 42% 4,280 Down 6% 127,865 Down 26% Motor The data shows that during industry: Received 1,875,728 Motor claims (up 9%) representing the largest category of personal insurance claims. Declined 6,282 claims. This was down 16% and accounted for 6% of declined personal insurance claims. Reported that consumers withdrew 63,578 claims (down 20%) representing half of all withdrawn personal insurance claims. Industry reported consumers withdrew Motor claims for various reasons including that: consumers did not subsequently receive a third party demand for payment of repairs stolen motor vehicles were later recovered by police with little or no damage consumers did not want their claim to affect their no claim bonus (NCB) consumers did not provide a repair quote third parties/insurers accepted liability each driver covered their own repair costs, and the motor vehicle was not insured for the claimed damage (for example, covered only for third party property damage). FOS Code GI Code Annual Report Page 19 of 51

20 Chart 8: Personal classes of general insurance % of lodged claims by class, % of declined claims by class and % of withdrawn claims by class in % 55% % Lodged claims by class 50% 40% 30% 50% 34% 41% 31% % Declined claims by class % Withdrawn claims by class 20% 21% 23% 13% 10% 0% 6% Motor Home Personal & Domestic Property 7% 4% 3% Travel 4% 2% 1% 1% 1% 0% 1% 1% 1% Residential Strata Personal classes of general insurance Accident & Sickness Consumer Credit Home All Home claims, declined claims and withdrawn claims data was down against data. Industry identified improved weather conditions during as a major influence on claim numbers. Home accounted for: 21% 714,768 of personal insurance claims 34% 36,213 of declined personal insurance claims. This is the largest category of declined insurance claims, and 41% 52,423 of withdrawn personal insurance claims. Industry reported that consumers withdrew Home claims because: an insured event or incident did not result in any damage consumers did not want their claim to affect their NCB stolen property was recovered with little or no damage consumers did not provide proof of loss, or FOS Code GI Code Annual Report Page 20 of 51

21 consumers repaired the damage at their own cost. Personal & Domestic Property In relation to Personal & Domestic Property data: Claim numbers increased 23% to 441,116. This accounted for 13% of all personal insurance claims lodged during The number of declined claims increased 72% to 32,930. This accounted for 31% of all declined personal insurance claims. Industry identified the following factors that may have contributed to variation in the data in : The increase in claims and declined claims was consistent with growth in sales of particular products, such as those covering laptops, mobile phones or pets. Code Participants sharpened their focus on applying the policy wording to the assessment of claims which contributed to an increase in declined claims. Consumers lodged some claims that were not covered by their policies contributing to the incidence of declined claims. There has been a growth in consumers electing a higher policy excess. As a result, more claims were declined on the basis that the value of the claim was less than the applicable excess. Changes in the features of some products led to a reduction in cover. As a result, some claims were no longer covered and were declined. Industry reported 5,235 withdrawn claims, down 31%. It also reported that consumers withdrew claims for a range of reasons including that property reported as lost was found subsequently. Travel The data shows that: Consumers lodged 248,801 Travel insurance claims (up 4%), representing 7% of all personal insurance claims. Industry declined 24,271 claims in , up 21%. This accounted for 23% of all declined personal insurance claims. Consumers withdrew 4,280 claims (down 6%). Industry reported that the following factors may have contributed to the increase in declined claims: Consumers lodged some claims that were not covered by their policies. Code Participants sharpened their focus on applying the policy wording to the assessment of claims. FOS Code GI Code Annual Report Page 21 of 51

22 Residential Strata While the number of Residential Strata claims fell to 55,147 (down 20%) declined claims increased 19% to 905. Code Participants were unable to identify any factors that may have contributed to the increase in declined claims for this class of insurance. Accident & Sickness The number of Accident & Sickness claims and declined claims fell 16% in Code Participants reported that the decrease in numbers may have been due to improved underwriting procedures and acceptance guidelines for both new and renewed policies, reducing their exposure to poorly performing policies. The data shows that withdrawn claims increased to 1,064 which Code Participants have attributed to better follow-up on outstanding claims. Code Participants also reported that claims were withdrawn because: Medicare sometimes covered the claimed costs no further treatment was required by some consumers, and in some disability claims consumers had not exhausted the excess period that applied under the policy and as a result, they were not entitled to payments. Consumer Credit Insurance While Consumer Credit Insurance claims fell 9% to 26,237, the number of declined claims increased 19% to 3,791. Code Participants reported that the increase in declined claims was not significant given the low data volume and identified a number of factors influencing declined claims rates including: the claim falling outside the terms of the policy claims made when there was no insurance cover in place, and the event giving rise to the claim occurred before inception of the policy. Withdrawn claims in this class increased by 21% although from a very low base. Code Participants reported that consumers withdrew claims for various reasons including that: consumers returned to employment, and there was no loan balance to pay out under the policy. These factors suggest that consumers do not have a clear understanding of how these products operate. Industry compliance data on claims handling Section 3 of the 2012 Code contains extensive standards that underpin the way in which Code Participants, their employees and Service Providers provide claims handling services to consumers. The standards include obligations to: Decide whether to accept a claim and inform a consumer of the decision within 10 business days of receiving their claim (section 3.1 and section 3.2.5). FOS Code GI Code Annual Report Page 22 of 51

23 Update a consumer on the progress of their claim at least every 20 business days (section 3.2.3). Notify a consumer of a decision to decline a claim (this must be done in writing), informing them of their right to ask for the information that a Code Participant relied on in assessing their claim and their right to ask for a review of any decision to refuse to release that information (section 3.5.5(b)). Handle all claims and provide all claims services in an honest, efficient, fair, transparent and timely manner (sections and 3.7.1). During industry reported that it had identified and addressed 3,835 breaches of section 3. This represented 68% of all industry-identified non-compliant activity. We have discussed some of these breaches and their causes, and provided some examples of industry s remedial actions below. Access to information used to deny a claim Industry identified and reported 1,849 breaches of its obligation to inform a consumer of their right to: (a) (b) access information that a Code Participant relied on in assessing their claim, and ask for a review of any decision to refuse to release that information. This information must be provided by Code Participants when notifying consumers of a decision to decline their claim. This non-compliant conduct accounted for 48% of all claims handling breaches and 33% of all breaches identified and reported by industry across all classes of insurance. Code Participants addressed the non-compliant activity by: Informing all affected consumers of their rights in writing. Updating procedures manuals, and amending claim denial templates and complaints brochures to ensure compliance with obligations. Informing claims staff of the changes to procedures and template documents. Updating consumers on claim progress Industry identified and reported 645 breaches of the obligation to update a consumer on the progress of their claim at least every 20 business days (section 3.2.3). Code Participants identified several causes underlying the non-compliant activity including: The introduction of new claims systems that affected the ability of claims staff to update consumers at least every 20 business days. Unexpected seasonal events that affected staff resourcing. As a result claims staff were unable to update consumers at least every 20 business days. Claims staff who did not follow established procedures. FOS Code GI Code Annual Report Page 23 of 51

24 Some of the types of actions implemented by Code Participants to address breaches of the standard included: Refresher training for claims staff to improve their awareness of Code requirements and procedures. Providing progress updates to affected consumers. Providing additional support for claims staff and improving training. Making a claim decision and notifying a consumer Industry identified and reported a total of 731 breaches of its obligation to decide whether to accept or deny a claim and inform a consumer of the decision within 10 business (532 breaches of section 3.1 and 199 breaches of section respectively). Here are two examples of how this type of non-compliance occurred and what each Code Participant did to rectify it. Some staff did not follow procedure and as a result failed to accept or deny some claims within 10 business days. The Code Participant s Team Leaders identified the issue by monitoring claims handling timeframes on a monthly basis. The Code Participant contacted all affected consumers and informed them of its claim decision. In addition, Team Leaders provided feedback and coaching to claims staff. A Code Participant s Service Provider identified a system error when claim volumes appeared to fall significantly. As a result, in some instances the Service Provider was unable to make a decision whether to accept or deny the claim within 10 business days. The Service Provider addressed the issue by contacting all affected consumers about the delays, prioritising the processing of affected claims and repairing the system error. FOS Code GI Code Annual Report Page 24 of 51

25 Honest, efficient, fair, transparent and timeliness Industry reported non-compliance with its obligation to handle claims and conduct claims services in an honest, efficient, fair, transparent and timely manner in 110 instances (sections and 3.7.1). Here are two examples of how the non-compliance occurred and how it was addressed. A Code Participant identified a number of instances where prior to closing claim files employees did not return motor vehicle claim excesses to a number of consumers. They were entitled to a refund of their excesses because the Code Participant confirmed that a third party driver was liable for the incident. This issue was identified during an internal audit review carried out by the Code Participant s audit team. The Code Participant addressed this matter by refunding the excesses to affected consumers including interest. It introduced a monthly management report to capture finalised claim files and identify and refund claim excesses, where required. It also introduced a claim finalisation checklist for all claims staff to reinforce the aspects that should be checked and verified before closing files. A Code Participant reported that during a brief period some consumers experienced delays in receiving claim payments. The Code Participant determined that due to an administrative oversight a claims team did not receive the usual daily reports which included customer account information to enable claim payments to occur. The Code Participant became aware of the issue when the claims team followed up the absence of the reports. FOS Code GI Code Annual Report Page 25 of 51

26 Tips for industry We handled 12 significant breaches of various claims handling standards during comprising: Six significant breaches which affected 12,192 consumers and resulted in payments of $122,767 to consumers including interest. Six significant breaches encompassing 13,790 instances of non-compliance. We also dealt with 188 breaches affecting 1,980 consumers where industry, in notifying consumers of a decision to decline their claim, did not comply with the obligation to inform consumers of their right to ask for: the information that a Code Participant relied on in assessing their claim (section 3.5.5(b)(i)), and their right to ask for a review of any decision to refuse to release that information, (section 3.5.5(b)(ii)). We have collated our top tips for industry on claims handling, based on our observations of industry-identified data and our handling of significant breaches here. 1. Regularly monitor the performance of claims staff and Service Providers against claims handling obligations through, for example: The review of open and closed claims files to assess the quality of decision-making, adherence to claims timelines and transparency during the claims process. Annual reviews of Service Providers. Monitoring and analysis of complaints and disputes about claims handling and decisionmaking, including the outcomes of disputes lodged with FOS. This will enable Code Participants to identify poor practices as early as possible and timely rectification of issues. 2. Ensure that claims handling procedures clearly identify which business areas are responsible for each part of a claims process. 3. Support a culture where employees and Service Providers report potential compliance issues to the business s risk and compliance area immediately. Ensure that they understand that reporting incidents is actively encouraged and that they are aware of the process for escalation. 4. Ensure that there is active oversight of compliance at all levels of management up to and including board level. 5. Identify all causes of an issue and develop and implement an effective and timely action plan to address the cause and prevent reoccurrence. 6. Monitor changes to procedures to ensure that they are working effectively and as expected. FOS Code GI Code Annual Report Page 26 of 51

27 9 Financial hardship Industry compliance data Of the 3,835 Code breaches self-identified by industry in , only five of these breaches involved the third party financial hardship provisions of the 2012 Code, which ensure that industry: Acts fairly and in a considerate manner when dealing with third parties in accordance with the ACCC & ASIC Debt Collection Guideline: for Collectors and Creditors (the Guideline). 9 The Guideline helps collectors and creditors to understand how the Commonwealth consumer protection laws apply to their activities. (Section 3.11.) Genuinely considers the financial position of third parties in financial hardship and debt repayment options. (Section 3.12.) Makes available internal complaints processes to third parties if unable to agree on debt repayment and provide information about Financial Counselling Australia 10 for referral to a non-for-profit, free financial counselling service. (Section 3.13.) Here are four instances of non-compliance with the financial hardship standards. Examples of non-compliance with financial hardship standards 1. An employee did not provide the third party with information about the debt (section 3.11). The Code Participant took steps to comply with the specific debt collection guideline and provided remedial training to the employee. 2. An employee did not consider a debt repayment option which extended the period of repayment and postponed payments for an agreed period (section 3.12(c)), when dealing with an application for third party financial hardship assistance. The Code Participant addressed the issue by taking the option into account and providing remedial training to the employee. 3. An employee did not provide information about relevant complaints handling procedures to a third party in financial hardship, when they were unable to reach an agreement about debt repayment (section 3.13(a)). The Code Participant responded by providing the required information and reviewing template documents to ensure they contained the relevant information. 4. A Code Participant did not provide information to a third party in financial hardship about its complaints process and referral to Financial Counselling Australia (sections 3.13(a) and (b)). It addressed the issue by improving its procedures and re-training employees in its recoveries area. 9 For further information go to: Debt collection guideline for collectors & creditors ACCC and RG 96 Debt collection guideline: For collectors and creditors ASIC - Australian Securities and Investments Commission. 10 For further information go to: FOS Code GI Code Annual Report Page 27 of 51

28 Tips for industry The 2014 Code has highlighted the importance industry places on dealing with financial hardship in a fair, genuine and practical way. All standards that apply to financial hardship have been enhanced and sit within section 8 of the 2014 Code. We note in particular that: The standards of section 8 are not limited to third parties and from 1 July 2015 they extend to insureds and third party beneficiaries (excluding hardship in respect of payment of premiums under a policy issued by a Code Participant). A Code Participant and its Collection Agents must suspend recovery action when they have received an application for financial hardship assistance (section 8.7). A person in financial hardship may ask a Code Participant to consider a release, discharge or waiver of a debt or obligation (section 8.8(c)). While industry reported an extremely low incidence of non-compliance with financial hardship standards in , we recommend that industry monitors this area carefully, particularly after 1 July 2015 when the 2014 Code becomes operational. FOS Code GI Code Annual Report Page 28 of 51

29 10 Responding to catastrophes and disasters Industry compliance data Industry reported 33 breaches of its obligation to notify a consumer of: their right to request a review of the settlement of their claim up to six months after finalisation, even if the consumer has signed a release, if they believed that the assessment of their claim was inaccurate or incomplete (section 4.3(a)), and its complaints procedures (section 4.3(b)) in response to a property claim that arose from a catastrophe or disaster and which was finalised within one month of the event. An example of non-compliance with these obligations is outlined below. Employees of a Code Participant wrote to consumers using a template document that did not include information about consumers right to review the terms of settlement. This was addressed by updating the template document, notifying each consumer of their right to a review and providing additional training and support for employees. Tips for industry We handled a significant breach of section 4.3 during which affected 392 consumers. It was caused by amendments to template documents that wrongly altered settlement review timeframes from six months to one month and removed information about internal complaints processes. This is a common occurrence. We have highlighted our top three tips for industry when reviewing and updating templates. 1. Have stringent review and sign off practices in place for the creation and updating of templates. 2. Monitor the use of updated template documents to ensure that unauthorised or unexpected changes have not been made. 3. Monitor the use of template documents to ensure that employees and Service Providers are using them when required. 4. Remove all old and obsolete templates. FOS Code GI Code Annual Report Page 29 of 51

30 11 Internal disputes Complaints and disputes Code Participants are required to have an internal process for dealing with complaints and disputes received from their customers and from third parties in defined circumstances. This internal process is described as an internal dispute resolution (IDR) process and usually consists of an internal complaints phase (stage one) and an internal disputes phase (stage two). These standards are described by section 6 of the 2012 Code. The 2012 Code defines complaint and dispute as follows: "Complaint" means an expression of dissatisfaction made to us related to our products or services or to our complaints handling process where a response or resolution is explicitly or implicitly expected. "Dispute" means an unresolved complaint. Code Participants also have an obligation to inform a consumer about their right to refer an unresolved dispute to FOS s external dispute resolution process. 11 Industry overview The overall internal disputes data is presented in Table 9. The data shows that consumers lodged 15% fewer internal disputes with Code Participants during This was mainly due to a 16% fall in internal disputes about personal insurance products and services. Table 9: Overview of internal disputes data Personal Classes of General Insurance Commercial Classes of General Insurance Number of internal disputes 25,486 1,591 Down 16% No change Number of finalised disputes 25,957 1,609 Down 14% Down 9% Number disputes finalised in 18,704 (72%) 1,201 (75%) favour of Code Participants Number of disputes finalised 7,253 (28%) 408 (25%) in favour of Consumers All Classes 27,077 Down 15% 27,566 Down 13% A fall of 13% in the number of internal disputes finalised by Code Participants is consistent with the 15% fall in internal disputes lodged by consumers. The proportion of internal disputes finalised in favour of consumers remains relatively unchanged about 30% of internal disputes are finalised by Code Participants in favour of consumers. 11 Acceptance of a dispute by FOS is dependent on its Terms of Reference. FOS Code GI Code Annual Report Page 30 of 51

31 Industry trends We have provided data about internal personal insurance disputes by class in Table 10 consisting of the: Overall number of internal disputes that consumers lodged with Code Participants across all types of internal disputes Internal Disputes. Number of internal disputes that consumers lodged about claims across all types of internal claims disputes Internal Claims Dispute. This data includes internal disputes about a Code Participant s decision to decline a consumer s claim. Number of internal disputes that consumers lodged solely about declined claims Internal Disputes about Declined Claims. Code Participants reported this data to us as a sub-category of internal disputes about claims. 12 The remaining column Declined Claims outlines the number of declined claims in each personal insurance class. We also discuss data about declined claims in Part 8 of this report. Table 10: Personal Insurance: internal disputes and declined claims DISPUTES LODGED Declined Claims Internal Disputes Internal Claims Disputes Internal Disputes about Declined Claims (as a % of Claims Disputes) PERSONAL Accident & Sickness 1,553 Down 16% Consumer Credit 3,791 Up 19% Home 36,213 Down 14% Motor 6,282 Down 16% Personal & Domestic Property 32,930 Up 72% Residential Strata 905 Up 19% Travel 24,271 Up 21% PERSONAL TOTAL 105,945 Up 12% 276 Up 5% 426 Up 25% 8,942 Down 26% 12,189 Down 15% 957 Up 23% 297 Down 28% 2,399 Up 15% 25,486 Down 16% 250 Up 1% 368 Up 28% 6,474 Down 28% 10,098 Down 15% 786 Up 15% 281 Down 27% 2,334 Up 40% 20,591 Down 14% 228 (91%) 202 (55%) 4,171 (64%) 3,222 (32%) 624 (79%) 194 (69%) 1,849 (79%) 10,490 (51% ) Our analysis of internal disputes data shows that 81% of disputes lodged by consumers internally with Code Participants were about claims. Moreover, 51% of internal claims 12 This is the first year that we have provided data about declined claims disputes. As a result, we have not provided any comparative data. FOS Code GI Code Annual Report Page 31 of 51

32 disputes were about a Code Participant s decision to decline a claim. This is consistent with FOS s experience with external disputes about general insurance products and services. 13 The data shows that the number of internal disputes fell 16% to 25,486 and the number of internal disputes about claims also fell 14% to 20,591. FOS reported that during the same period it accepted 6,193 domestic general insurance disputes, down 12% on data. 14 Most internal disputes were about the following three classes of personal insurance: 3. Motor 12,189 internal disputes, down 15%. 4. Home 8,942 internal disputes, down 26%. 5. Travel 2,399 internal disputes, up 15%. Code Participants reported that falls in internal dispute numbers could be attributed to: improved claims management reduction in claims processing times and following up on third party evidence greater emphasis on resolving complaints at the first point of contact, and more effective and efficient complaints handling in stage one of the internal complaints process, reducing the need for escalation of disputes to stage two. Consumer Credit Consumers lodged: 25% more internal disputes overall about Consumer Credit insurance products and services. 28% more internal disputes about Consumer Credit insurance claims in The data shows that most internal disputes were about a Code Participant s decision to decline a claim declined claims increased by 19% to 3,791. Code Participants did not report any factors that may have contributed to these increases and noted that low values may lead to a large proportional variation. Home and Motor All internal disputes data was down for these classes of insurance compared to In relation to Home, 4,171 internal disputes and for Motor, 3,222 internal disputes, were about a decision to decline a claim (representing 64% and 32% of internal claims disputes respectively). Some Code Participants have reported that improved efficiency and more effective complaints handling, particularly in stage one of the internal complaints process, contributed to a fall in 13 See page 60, Annual Review , Financial Ombudsman Service, 14 See footnote 13 above. FOS Code GI Code Annual Report Page 32 of 51

33 internal disputes in both classes of insurance. Other Code Participants attributed the fall in internal disputes to: Staff training and development which improved their ability to effectively explain the reasons a claim item or incident was not covered by a policy. Implementation of processes which increased the number of disputes being resolved in stage one of the internal complaints process. Personal & Domestic Property In relation to Personal & Domestic Property insurance: Industry reported that consumers lodged 957 internal disputes about products and services, up 23%. This included 786 internal disputes about claims, up 15%. Of these 786 internal claims disputes, 624 disputes were about declined claims. At the same time, Code Participants declined 32,930 claims, up 72%. Several Code Participants reported that the gap between the number of declined claims and the number of internal disputes may be due to the following factors: Many internal disputes were resolved during stage one of the internal complaints process. Many declined claims were of low value and so consumers were less inclined to dispute them. For some products such as pet insurance, consumers claimed several times per year and so they were less inclined to dispute a decision to decline a claim. Some products were changed during which resulted in lower internal disputes and improved customer satisfaction. For example, some exclusions and policy limits were removed. Travel We note that in relation to Travel: The number of internal disputes about products and services increased 15% to 2,399 and included 2,334 internal disputes about claims, up 40%. Of these 2,334 internal claims disputes, 1,849 disputes were about declined claims, against a 21% increase in declined claims to 24,271. Some Code Participants reported that the increase in internal Travel disputes was consistent with a growth in sales, claims and declined claims. Other Code Participants attributed this to an increase in the number of issues escalated by staff. FOS Code GI Code Annual Report Page 33 of 51

34 Industry compliance data Industry reported that it identified 1,123 instances of non-compliance with various aspects of section 6. This accounted for 20% of all industry-identified breaches. This included 902 breaches of industry s obligation to respond to an internal dispute within 15 business days, provided no further information and investigation is needed (section 6.6(c)). Industry reported that this non-compliance was primarily associated with a failure to follow procedures. To address the non-compliance Code Participants: increased staff numbers provided coaching to staff, and contacted affected consumers and agreed on alternative timeframes for complaint responses. These instances highlight the importance of Code Participants providing adequate staffing resources for areas of the business responsible for internally reviewing consumers complaints and disputes. This will ensure that employees involved in internal complaints processes have a capacity to: correctly apply internal complaints processes adhere to timeframes for completion of each stage of the internal complaints process, and comply with complaints handling obligations overall. FOS Code GI Code Annual Report Page 34 of 51