It has since become apparent that there will not be a Review of the FOS Terms of Reference in 2014.

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1 Attention: Phil Khoury Cameronralph Navigator Sent by Cc: 23 January 2014 Dear Mr Khoury FURTHER ICA SUBMISSION ON FOS INDEPENDENT REVIEW I refer to the Insurance Council of Australia s (ICA) first submission to this Independent Review, dated 11 October In this submission, the ICA noted that it limited its comments to major operational issues arising under the Review s Terms of Reference, on the basis of our understanding that the FOS Terms of Reference would be comprehensively reviewed in It has since become apparent that there will not be a Review of the FOS Terms of Reference in We very much appreciated your letter of 6 December 2013, which acknowledged this development and offered the ICA and its members a further opportunity to raise outstanding matters of concern, despite the advanced stage of the drafting process for this Independent Review. We would like to thank Debra Russell for meeting with the ICA and our members on 15 January at the ICA office. This was a very constructive meeting that covered a range of matters of importance for ICA members. As noted at the meeting of 15 January, this further written submission from the ICA is designed to capture the comments and issues raised at this meeting, that are of collective interest for our members. In the interests of brevity, we have set out these matters in short form below for specific issues that were on the agenda for the meeting on 15 January. Extent of jurisdiction for general insurance small business products [ToR 4.3] The ICA and its members do not support the expansion of this jurisdiction. Concerns were noted by ICA members about the complexity of business products such as business interruption cover, and industrial and special risks. A related concern is the lack of knowledge and expertise of FOS officers in relation to these highly technical areas. It was also noted that an expansion of this more complex jurisdiction could impact the capacity of FOS officers to manage other FOS applications in a timely fashion.

2 Subject to approval of the ICA Board, it is expected that the (forthcoming) revised General Insurance Code of Practice (Code) will principally apply to retail insurance, which does not cover business products that cover risks such as business interruption, and industrial and special risks. An expansion in FOS s jurisdiction in relation to small business insurance could increase the differences between FOS s jurisdiction and the scope of the Code. While the scope of the FOS jurisdiction and the Code do not need to be perfectly aligned, a general alignment in terms of products to which the two frameworks apply supports clarity for retail and small business consumers. ICA members also seek a clearer definition of the exemption for industrial and special risks (ISR). The purpose of a clarification should be to ensure that ISR cover is always exempted, even if the policy is not specifically called an ISR policy. If such a clarification is not available, where business insurance is involved, FOS officers should consider the substantive nature of the cover, and look beyond the product name before determining whether a matter is within jurisdiction. Motor vehicle third party claims [ToR 4.2(b)(vi)] There is not consistent support among ICA members for the proposed increase of this jurisdiction to $5000. It was noted that uninsured motorists don t make any financial contribution towards the cost of FOS, and that they may have alternative channels to pursue their matters. The option of a fee being required (as has happened in the past) for uninsured third party applications at FOS was canvassed. The ICA did note that this matter was of particular interest to ASIC, and we are interested to understand the likely projected increase in motor vehicle third party claims if this jurisdiction were to increase to $5000. Introduction of a streamlined approach for simpler, low value disputes There is in principle industry support for this proposal. The importance of the definition of simpler, low value disputes was noted. Non-financial loss award cap to be increased to take account of inflation increases [ToR 9.3] ICA members expressed general concern on this proposal. It was noted that claims in this jurisdiction seem to be increasing year on year, and that such awards may be made by FOS, even when not sought by the applicant. Concern was also expressed about the potential for this jurisdiction to be used in a punitive sense. Several ICA members have advised that FOS previously stated it would allow FSPs to submit arguments against a non-financial loss award, if one were contemplated. These members were unable to identify any instance where this has in fact occurred. It was noted that the banking sector does not support an increase in this jurisdiction, and that more detailed discussion between FSP sectors is required. Page 2

3 A question was also raised as to the source of support for this amendment, given that awards, in nearly every matter, are below the current cap. Eligibility to lodge a dispute [ToR 4.1(a)] ICA members expressed concern that the role of service providers (such as smash repairers) acting as representatives for individual applicants could be having an inflationary effect on claims. Service providers could be using the FOS process to inflate the value of their invoices. In these cases, it is clear that such service providers are not genuinely acting in the best interests of the applicant. It was noted that an analysis is required to examine the extent of this matter. A suggested solution is to amend section 4.1(a) of the Terms of Reference to explicitly limit agents of individual applicants to those representatives who are in a fiduciary-like relationship with the applicant. This would include trustees and legal representatives. Exclusions from FOS s jurisdiction [ToR 5.1] Several ICA members expressed concerns about the application by FOS of the exclusion in relation to disputes concerning fees and premiums. Several ICA members will provide specific information on this matter to the Independent Review. ICA members do not support the FOS practice of separating risks covered by a single policy so as to bring the claim in relation to a specific risk within the financial limit of FOS s jurisdiction. It is industry s view, for example, that a combined home and contents policy (ie, the total claim under the policy per single event) should be the relevant value for the purpose of deciding whether the application falls within FOS s jurisdictional limit. Appeal process for individual determinations The ability of an FSP to make an appeal (on clearly defined grounds) in relation to a particular determination is strongly supported by ICA members. In canvassing this matter, it is important to note that applicants are not bound by FOS determinations, and they have the right to further pursue a matter before the courts. FSPs are bound by FOS determinations, and have no further recourse. The ICA and members noted the suggestion from the Independent Reviewer that the view of ASIC on this matter should be carefully considered. The Independent Reviewer also noted that such an appeal right would need to be afforded to all applicants, and that other FSP sectors may not support this proposal. The proposed Review Mechanism drafted by FOS in 2013 was noted, and the Independent Reviewer indicated that the Review will consider whether access to this mechanism should be available to individual FSPs. Page 3

4 On the basis of discussions on 15 January, the ICA understands that the Review will consider the test case procedure. The Review may specifically consider an amendment to sections 10.1 or 10.2 of the Terms of Reference, to ensure that if the test case procedure is triggered, the FOS process must go into abeyance until the test case has been finally determined. ICA members would support this amendment to the Terms of Reference. Interest awards [ToR 9.5] ICA members agree with an applicant s right to an award for interest. However, there should be a cap on interest payable if the matter has been before FOS for a particular length of time (for example, 18 months) and the insurer has responded in a timely manner. ICA members noted the impact of interest awards on actuarial modelling and reinsurance. The solution noted was to improve the timeliness of FOS decisions. Definition of good industry practice [ToR 8.2] While time did not allow discussion of this agenda item on 15 January, several ICA members have strongly suggested that FOS officers should have current general insurance industry knowledge, to facilitate the fair application of this concept in the FOS Terms of Reference. Process for deciding disputes [ToR 8.5] While time did also not allow for discussion of this matter on 15 January, it has been suggested that where a recommendation is rejected, the matter should not progress to determination unless additional information or meaningful argument is presented. Matters outside FOS s Terms of Reference The ICA submission of 11 October 2013 generally addressed the matter of disputes brought to FOS which fall outside the scope of FOS s Terms of Reference. This matter has been raised again in relation to the misapplication of the financial limit on FOS s jurisdiction. The ICA submits again that, where an FSP places a submission to FOS that an application is outside scope, FOS should seriously consider such submissions, and involve experienced, senior staff in the decision-making process at the outset. The ICA also submits that a determination should be deemed to not be binding on an FSP if: The FSP makes an initial submission that an application falls outside FOS s jurisdiction, and FOS nevertheless proceeds to determination, and It is subsequently clear that the matter did in fact fall outside FOS s jurisdiction. Page 4

5 The circumstances of such matters could then be considered as part of the more general Review Mechanism proposed by FOS to help avoid future jurisdictional errors by FOS. If you require any further information in relation to this submission, please contact Vicki Mullen, General Manager, Consumer Relations & Market Development Directorate on (02) or Yours sincerely Robert Whelan Executive Director & CEO Page 5