November 2012

Joint Consumer Submission to the General Insurance Code of Practice

Independent Review 2012 Issues Paper

Authored by the Insurance Law Service

(a project of the Consumer Credit Legal Centre (NSW) Inc.)

Contact Person: Katherine Lane

Principal Solicitor Insurance Law Service

Consumer Credit Legal Centre NSW Inc. Ph: 02 8204 1350

The Consumer Credit Legal Centre is a community legal centre that also runs the Insurance Law Service (“ILS”). The ILS is funded by the Legal Aid Commission of NSW and the Federal Government through the Community Legal Services Program.

The ILS has been providing advice and assistance to Australian consumers in relation to insurance since July 2007. In that time our solicitors have provided advice in the course of over 9,000 calls, and opened more than 400 casework files. Advice is provided free of charge on a 1300 number available throughout Australia. While based in NSW, ILS is a national service and more than 59% of callers taken in the past 12 months were from interstate, including 25% from Victoria and 23% from Queensland.

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Contents

0. Background .............................................................................................................. 3 0.1 About this submission ............................................................................................. 3 0.2 Consultation process for this submission ................................................................ 4 0.3 Priority issues ......................................................................................................... 4

1. Issue 1 - Code Publicity, Awareness and Engagement ......................................... 4 2. Issue 2 – Code Content, Presentation and Style .................................................... 6 3. Issue 3 – Code Coverage ......................................................................................... 7

3.1 Code Participants - Insurers .................................................................................... 7 3.2 Code Participants – Agents and Service Providers ................................................. 8 3.3 Agents, distributors, service providers & third party beneficiaries ............................ 8

4. Issue 4 – Principles, Objectives and Legal Status ............................................... 10 5. Issue 5 – Training and Education .......................................................................... 13 6. Issue 6 – Buying Insurance ................................................................................... 14 7. Issue 7 – Policy Terms and Coverage ................................................................... 17 8. Issue 8 – Premium – Payment and Cancellation .................................................. 24 9. Issue 9 – Claims ..................................................................................................... 27 10. Issue 10 – Claims, Complaints and IDR ................................................................ 33 11. Issue 11 – Claims and disputes, IDR and EDR ..................................................... 40 12. Issue 12 – Code Monitoring and Investigation ..................................................... 42 13. Issue 13 – Code Enforcement and Sanctions ....................................................... 44 14. Issue 14 – Financial Hardship ............................................................................... 45 15. Issue 15 – Natural Disasters .................................................................................. 54 16. Issue 16 – Code Governance ................................................................................. 56 17. Issue 17 – General Issues ...................................................................................... 57

17.1 Charters and Opt Out ............................................................................................ 57 17.2 Code and Industry Development – Continuous Improvement ............................... 57 17.3 Legal Aid ............................................................................................................... 57

18. Other issues not canvassed by the Issues Paper ................................................ 59 18.1 Other Recommendations of recent Reports .......................................................... 59 18.2 Debt Collection ..................................................................................................... 59 18.3 Fraud investigations/investigations generally ........................................................ 61 18.4 Uninsured Motorist Extension ............................................................................... 65 18.5 Repair workmanship and materials ....................................................................... 68

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0. Background 0.1 About this submission This submission has been prepared on behalf of Australian consumer advocates by the Insurance Law Service, a project of the Consumer Credit Legal Centre NSW Inc. The Insurance Law Service has been funded by the Insurance Council of Australia to consult with relevant Australian consumer advocates in order to prepare a joint consumer submission to the General Insurance Code of Practice Independent Review 2012 Issues Paper (the Issues Paper). In addition to the Insurance Law Service, this submission has been contributed to and is endorsed by the following individuals/organisations:

• Legal Aid NSW • Legal Aid QLD • Legal Aid VIC • Financial Counselling Australia • Financial and Consumer Rights Council • John Berrill (Maurice Blackburn) • Caxton Legal Centre • Consumer Action Law Centre VIC • Footscray Community Legal Centre • Wyndham Legal Service • Brimbank Melton Community Legal Centre • Sunshine Youth Legal Centre • Stephen Duffield (Consumer representative member FOS Panel) • Kildonan Uniting Care

The demographics of our client base are marked by significant numbers of:

• Low income earners; • Centrelink recipients; • Migrants; • Refugees; • Public housing tenants; and • Individuals from culturally and linguistically diverse backgrounds.

Note that abbreviations used in the Issues Paper have been adopted in this submission including the following:

• FOS QF Survey – 2010/2011 Queensland Floods Survey: Report to the Insurance Council of Australia, as prepared by the FOS Code Compliance and Monitoring Team, August 2012.

• HOR Report – The Parliament of the Commonwealth of Australia, In the Wake of Disasters, Volume One: The operation of the insurance industry during disaster

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events, House of Representatives Standing Committee on Social Policy and Legal Affairs, February 2014.

• Major Reports – Five recent reports on disaster events: NDIR Report, HOR Report, QFCI Report, Treasury Paper, FOS QF Survey.

• NDIR Report – National Disaster Insurance Review, Report of the Inquiry into flood insurance and related matters, September 2011.

• QFCI Report – Queensland Floods Commission of Inquiry, Final Report, March 2012 • Treasury Paper – Commonwealth Treasury, Reforming Flood Insurance – Clearing

the Waters, Consultation Paper, April 2011. 0.2 Consultation process for this submission The consultations undertaken in preparing this submission include:

• Meetings with the Code Reviewer o Preliminary meeting with the Reviewer on 27 July 2012 o Code Review Forums up to the final forum on 21 November 2012

• E-mail consultation to establish the list of consumer issues with the finalised list sent to the Reviewer on 14 September 2012

• Teleconference with consumer advocates on 5 December 2012 0.3 Priority issues This submission addresses a wide range of issues including most of the issues raised in the Issues Paper. However, the priority issues for the consumer movement are as follows:

• Financial hardship – Issue 14 • Debt collection – Section 18.2 • Fraud investigations/investigations generally – Section 18.3 • Pre and Post cancellation notices of insurance contracts – Issue 8 • Claims, complaints and disputes, IDR and EDR – Issues 9 – 11 • Code monitoring and investigations – Issue 12 • Code enforcement and sanctions – Issue 13 • Code governance – Issue 16 • Unfair Terms – Issue 7(d)

1. Issue 1 - Code Publicity, Awareness and Engagement The Review asks for submissions on whether the Code is adequately promoted to the insurance industry, the insurance industry service providers and to customers. Consumer advocates are of the view that all parties dealing with the insurance industry should be informed of the existence of the Code.

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In relation to promotion of the Code to customers, consumer advocates agree with the findings of the House Of Representatives Report (“HOR Report”) on this issue as summarised in the Issues Paper. From our collective experience, very few customers are aware of the Code’s existence. This is evidenced by the persistent questions to legal advice centres such as:

1. What are my rights when making a claim? 2. How long can my insurer take to process my claim? 3. Can my insurer take into account irrelevant information when deciding my claim? 4. Is my insurer supposed to keep me updated on what’s happening with my claim?

We note that the Issues Paper states that the HOR Report does not cite any basis for their view that the Code is not consistently advertised on the websites of member insurance companies. We believe that the issue is not whether there is advertising but that advertising isn’t prominent enough to attract a customer’s attention. We were unable to find mention of the Code on any insurer’s website home page. Most only appear on the help, information or dispute sections of the insurer’s websites. This practice is similarly reflected in most insurers’ product disclosure statements (“PDS”) where mention of the Code appears towards the end of what generally are lengthy documents. We note also that the Issues Paper states that insurer representatives submit that at the time of making a complaint or submitting a dispute, customers are aware of the Code. We submit that the Code should be promoted to customers well before they reach the point of wanting to raise a dispute and wanting to then find more information to help them with their disputes. Assisting in the resolution of disputes is only one among four of the Code’s current objectives. The success of the remaining objectives necessitates that the Code should be given more prominent and adequate promotion. Customers also report to us that insurers generally do not provide a copy of the Code when they are given their policy documents and neither are they informed of the existence of the Code when they call or apply for a quote over the Internet to purchase insurance. The lack of adequate prominent promotion of the Code to customers is real, concerning and must be addressed. Raising awareness is critical to utilisation by consumers and their advocates.

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Code publicity, awareness and engagement in the context of debt collection Our casework has uncovered a number of instances in which correspondence issued by the representatives of an insurer failed to identify the insurer as the initiator of a debt recovery process. This issue has also caused significant uncertainty and confusion for third party debtors and community centre lawyers, who have been contacted by organisations such as law firms and mercantile agents without any indication that an insurer is involved in the matter. In this context, awareness of the Code is not being promoted, as identification of an insurer is necessary in order for debtors to become aware of the Code’s application. Refer also to our related comments at issue 18.2 on Debt Collection. 2. Issue 2 – Code Content, Presentation and Style The Review asks for submissions on whether:

(a) the Code should consist of principles, including ethical principles or rules or both principles and rules?

We submit that the Code should consist of ethical principles and rules. These principles and rules must be clearly detailed in the Code and there should not be any exceptions to their application. We would be happy to consult on the creation of such ethical principles and rules.

(b) the Code should be in plain English? Consumer advocates strongly support the Code being in plain language and being easy to understand.

Recommendation

1. The Code should be promoted by the Insurance Council of Australia (ICA) and insurers including:

a. Easy to locate and prominently advertised on insurers’ websites; b. Provided with the PDS (or alternatively, to be environmentally friendly, a

summary of the Code with information on how to obtain the full version online or by telephone) and mentioned in the PDS in a prominent location; and

c. Available in insurers’ branches. 2. The Code should be promoted to consumer advocates. Designated consumer

advocates/groups should be resourced where possible for Code promotion.

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3. Issue 3 – Code Coverage The Issues Paper states that currently the Code does not apply to all insurers that carry on business in Australia, nor to all insurers that are authorised as general insurers by the Australian Prudential Regulation Authority (“APRA”) under the Insurance Act 1973 (Cth). In relation to Agents and Service Providers, the Issues Paper also identifies current gaps between those that the Code clearly applies to and those that are not as clear, inconsistencies between training requirements and definitions of various agents and service providers. The Code Review seeks to resolve these issues and also queries whether the Code should apply to third party beneficiaries given their increasing recognition in legislative and common law developments. 3.1 Code Participants - Insurers The Review asks for submissions on whether the Code should apply to:

(a) all insurers that carry on business in Australia? (b) all insurers carrying on business in Australia and be a condition of

authorisation by APRA under the Insurance Act 1973 (Cth)? (c) all insurance industry participants holding an AFSL? (d) further, should it be a condition of an AFSL that the licensee be a Code

Participant? Consumer advocates agree with the views and recommendations of the NDIR and HOR Report on this issue as summarised in the Issues Paper. It is vitally important that consumers can “assume” a certain level of commitment and standards when dealing with insurers because:

• Leaving it up to consumers to have to investigate Code participation by each insurer prior to selecting insurance would require an expensive and extensive consumer education exercise (given the low base levels of awareness) that would be bound to fail – as evidenced by the findings of the recent Major Reports shopping around on the basis of price and coverage is complex enough for the average consumer; and

• It is in the interests of industry that uniform standards are applied both for competitive neutrality and to protect the reputation of the industry as a whole.

We submit that the Code should apply to all insurers carrying on business in Australia and be a condition of authorisation by APRA under the Insurance Act 1973 (Cth). That is, we are in favour of option (b). This submission is made on the belief that the Code should be extended to incorporate all members of the industry involved in the insurance process, as much as is practicable to bind all insurance industry participants to the Code.

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3.2 Code Participants – Agents and Service Providers We note that one of the changes to the selling of insurance in recent years has been through ‘general insurance distributors’ (Refer to ASIC Class Order 05/1070). Some typical insurance distributors are travel agents, car dealers and real estate agents. Under the Class Order, these distributors are not an Authorised Representative of the Australian Financial Services Licensee (insurer) and are required to specifically draw their client’s attention to the availability of the insurer’s dispute resolution system. Distributors are generally used because unlike Authorised Representatives, they do not give any advice (they are limited to only “dealing” in either or both general insurance products or bundled consumer credit insurance products), they do not have to be registered with ASIC and they do not have to provide a personalised Financial Services Guide. With the majority of the wording in the Code focusing on Authorised Representatives, it is not clear whether insurance distributors are covered currently by the Code and if not, we submit that they should be. Whether or not any gaps identified in the Issues Paper on this issue are drafting matters or not those gaps must be addressed or the Code will have diminished utility and credibility as an industry wide standard.

3.3 Agents, distributors, service providers & third party beneficiaries The Review asks for submissions on the following matters:

(a) Does the Code need to cover selling in the light of chapter 7 of the Corporations Act and its regulation and ASIC guidelines?

We submit that the Code should still cover the selling of insurance but that it should not be inconsistent with Chapter 7 of the Corporations Act, its regulations and ASIC guidelines.

(b) Should the Code apply, in relation to its participants, to the conduct of selling agents?

Recommendation The Code should be amended to clarify that it applies to all insurance industry agents and service providers (including distributors) without exception.

Recommendation The Code should be extended to incorporate all members of the industry involved in the insurance process, as much as is practicable to bind all insurance industry participants to the Code. Adoption of the Code should be a condition of authorisation by APRA under thr Insurance Act 1973.

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(c) If so, should the Code apply differently to different categories of selling agents?

(d) Should the Code apply, in relation to its participants, to the conduct of claims service providers?

(e) If so, should the Code apply differently to different categories of claims service providers?

In the pursuit of a broad application of the Code to all involved in the insurance industry, in relation to (b) - (e), the Code should apply to the conduct of all selling agents and all claims service providers. We submit that the Code should be applied to all selling agents and claims service providers in the same way that insurers are responsible for the conduct of their selected and authorised repairers under the current Code (section 3.14). In this way, it would not be necessary to apply the Code differently to different categories of selling agents and claims service providers as ultimately the insurers would be responsible for the conduct of the selling agents and claims service providers they select and/or directly authorise. From our collective experience, there are occasions where selling agents and claims service providers engage in misleading and deceptive conduct. In relation to selling agents, this conduct relates mainly to coverage and exclusions of insurance policies as represented to potential customers. In relation to claims service providers, such as loss assessors and adjusters these could relate to providing hydrology analysis where they are not qualified to do so or making certain admissions or representations to customers where the insurer ultimately decides otherwise. In relation to the conduct of investigators please refer to the section below on fraud investigations (Section 18.3). Section 3.2.2 should be amended to add that if insurers appoint a loss assessor/loss adjuster or investigator, they should be required to explain why those people have been appointed. Theoretically, Service Providers are meant to do this under 3.7.3 of the Code, but in our experience, we have spoken to countless customers who have no idea who they have spoken to or why. It is clearly within the scope of the insurer’s powers to provide this explanation, upon announcing the appointment of a service provider, as the insurer is the one doing the appointing and would know the reason why.

(f) Should the Code apply to third party beneficiaries of insurance contracts to whom the IC Act applies?

We submit that the Code should be redrafted to apply to third party beneficiaries where relevant as we are of a similar view to that stated at paragraph 10.1 of the Issues Paper in that development in the common law and legislation increasingly place third party beneficiaries on the “same footing, with analogous rights and obligations, as the insured.”

Recommendation The Code should be redrafted to apply to third party beneficiaries where relevant.

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4. Issue 4 – Principles, Objectives and Legal Status Issues sought to be addressed in this section involve the voluntary nature of the Code, the fact that the Code currently is expressed to have no legal effect which is open to doubt, and the view in the wake of the Major Reports, that the Code is unsatisfactory and ineffective. The Review asks for submissions on:

(a) whether the Code principles and objectives are an adequate basis for the Code standards in the light of the criticisms of this aspect of the Code;

We submit that the Code’s objectives should include promoting good industry practice. The Code of Banking Practice for example includes in its Key Commitments: “2.1 We will:

(a) continuously work towards improving the standards of practice and service in the banking industry;

(b) promote better informed decisions about our banking services: ....”

(b) the extent to which the Code does or should create enforceable legal rights in the customers;

The HOR Report found the “the voluntary Code very unsatisfactory and with scant regulatory effectiveness.” This statement was reiterated in the Issues Paper. A key objective for the Code is for consumers to be confident that there will be consequences for breaches of the Code and that this will lead to improvements in the conduct of insurers. We contend that to achieve those outcomes, the Code must:

1. be legally enforceable as a term of the contract; and 2. have a financial penalty regime to cover certain significant breaches of the Code.

Legally enforceable Code We advocate that the Code should be amended to make it a term of the insurance contract. Precedents for this approach already exist in the Code of Banking Practice and the Mutual Banking Code of Practice. The decision to make the Code a term of the insurance contract sends a clear message to the public that the insurance industry stands behind the Code and takes the terms of the Code as seriously as a contract of insurance. A decision not to include the Code as a term of the insurance contract would send the opposite message, that is, that the Code is weak and unenforceable, and that the Code is not as effective as the Code of Banking Practice and the Mutual Banking Code of Practice.

Recommendation The Code should be amended to include an objective of promoting good industry practice.

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We are of the view that it is necessary to achieve the Code’s objectives of improving consumer confidence in the general insurance industry and in the effectiveness of the Code that this approach be taken. Penalty Regime The Code should be amended to include a monetary penalty regime where insurers pay customers for identified breaches of significant sections of the Code. A similar regime exists under insurance company charters for breaches of charter promises. A penalty regime would have the following advantages:

• it would be a clear indicator of the insurer’s commitment to the Code; • it would be a strong incentive for consumers to engage with the Code; • it would motivate insurers to take Code commitments seriously and train staff

accordingly; and • it would assist in identifying breaches (and therefore discouraging them) that are

unlikely to come to light otherwise. Take, for example, the commitment at Clause 3.4.3 in relation to the insured’s right to claim and not being discouraged from lodging a claim. Even if the frontline staff member is correct that the claim will not be paid in 70% of cases (and we are not suggesting there is evidence that this is the case), then 30% of claimants who are discouraged have missed out on a valid claim unless they seek independent advice or are sufficiently assertive to insist on lodging a claim regardless. Our experience suggests that this number will be low – perhaps even more so when there is no large scale catastrophe attracting media comment and community information/advice initiatives. Of the proportion of the 30% who fail to lodge their claim as a result of such discouragement, the chances that they will lodge a complaint for a Code breach is even lower. Further, as there is no claim or dispute that will ever be reviewed by anyone else, the breach will not be later identified as part of that process either (such as a breach of a time line which becomes apparent in relation to a disputed claim lodged in FOS). Thus the insurer has very little incentive to comply with the clause and plenty of incentive to ignore it. The harm for those consumers who have been discouraged from lodging a valid claim, however, can range from significant to catastrophic and the reputational risk to the particular insurer and the industry more generally considerable. If there were a monetary penalty payable to the consumer for a breach of this clause, then consumers would have an incentive to report the conduct and insurers would be much more motivated to avoid a breach, thereby greatly reducing the probability that valid claims will be discouraged. We do not advocate for this penalty regime applying to all sections of the Code, but only to certain specific sections which have the potential to significantly impact on the rights of consumers including for example:

1. Section 3.4.3 on the insured’s right to claim and not being discouraged from lodging a claim;

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2. Section 3.5.5 on the insured’s right to written reasons when insurers deny their claim, insurers to inform insureds of their right to ask for copies of information relied on in assessing the claim, insureds’ right to request a review of the denial of the claim, insurers to provide information about complaints handling procedures and provide on request external experts and service providers’ reports within 10 days of the request;

3. Section 6.2 and 6.6 on responding to complaints within 15 business days; and 4. Section 6.10 on the issue of insurers informing insureds of their rights to take

complaints already in IDR for 45 days or more to EDR.

All of the above sections involve potential breaches that may never come to light if the consumer does not exercise their right to a review (possibly because they have not been told about their right to a review and/or because they have insufficient information on which to judge whether they have grounds for lodging a dispute). The above is not intended to be an exhaustive list. We would be happy to consult on exactly which sections of the Code should be included within this penalty regime and the amount of the penalties. The penalty schedule should be detailed in the Code guidelines. We envisage a schedule similar to the Compensation schedule in the Victims’ Compensation Act where it states that for breaches of key provisions, a certain amount is payable. A penalty regime would send a clear message to the public that the insurance industry takes the Code seriously and is prepared to pay some compensation to consumers for failure to comply with the Code. Any decision on the compensation would need to be made by the Code Compliance Committee and procedural fairness used in the decision making process. This regime could be adopted whether or not the Code is made a contractual term in the manner that the Charters apply.

(c) whether the Selected Statistics or the FOS QF Survey indicate that changes to the principles, objectives or legal status of the Code are necessary and appropriate.

Consumer advocates are concerned about the lack of statistics and information covering:

1. Consumers who enquire about potential claims but do not lodge a claim (the concern is that consumers are persuaded not to claim);

2. The large number of consumers that claim on a policy but the claim is never paid and a dispute is never sent to the Financial Ombudsman Service; and

Recommendation The Code must:

1. be legally enforceable as a term of the contract; and 2. have a financial penalty regime to cover certain significant breaches of the Code.

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3. Consumers living in homes that cannot get insurance (or affordable insurance) due to certain risks e.g. flood.

The statistics provided do not give any insight into these problems. Given these issues are real and may indicate significant problems with internal dispute resolution for insurers, in this situation, the lack of statistics forms the strongest argument for why the Code needs to be significantly strengthened and be legally enforceable. 5. Issue 5 – Training and Education The Review asks for submissions on whether:

(a) the Code standards on training and education for selling insurance (section 2.4) remain necessary, and if so, whether they are adequate;

(b) the Code standards on training and education for claims handling (section 3.7) are adequate;

From our collective experience, there is a significant lack of understanding among insurance staff in regards to many aspects of the Code. Our casework files reveal a general course of conduct for example in relation to debt recovery that includes:

1. misinformation or inadequate information provided verbally as part of the sale process;

2. unreasonable delays in communication; 3. failing to confirm actions in writing; 4. incomplete or inadequate responses to requests; 5. failing to negotiate on financial hardship grounds with third parties during the

recovery process; and 6. incorrect claims of a failure to respond to correspondence.

Insurance industry employees require further training in order to achieve greater Code compliance. Additionally, the training and education standards in the Code for claims handling do not focus on ensuring that knowledge is applied into practice. In our experience, employees and service providers do not inform customers of their rights under the Code where those sections of the Code relate to a claim or complaint. In the interests of improving awareness of the Code and its effectiveness, we recommend that the training and education standards require that employees and service providers inform customers where relevant of their rights under the Code. Refer to our related discussion on the issues regarding claims, complaints and disputes, IDR and EDR (failure to inform customers of their rights in relation to these matters), sections 18.2 (failure to inform third parties about hardship provisions) and 18.3 (failure to inform customers that insurers can only take into account relevant information when deciding a claim and that claims investigators as service providers or employees must act honestly, fairly and in a transparent manner).

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Training is an important issue and the recently released CCC Annual Report, (publicly available for the first time) refers to the importance of ongoing training. It also states that the CCC favours Code Guidelines which used to be in place but are currently obsolete. The term ‘financial hardship’ is an industry term and not used by consumers hence training would help Code Participant’s staff to identify triggers of financial hardship and how to deal with financial hardship appropriately even though consumers do not specifically refer to “financial hardship”. In relation to financial hardship training, we are aware that there are organisations that run useful training in this area.

(c) the Code standards on financial hardship (3.8-3.13) should include training and education standards;

We submit that the Code sections on financial hardship should include training and education standards to ensure that all Code participant staff and service providers are aware of and inform consumers of their hardship rights under the Code including their rights to refer hardship disputes to the insurer’s internal dispute resolution department and the existence of financial counsellors.

(d) the Code standards on information and education (section 5) produce sufficient understanding of the Code and Code standards and insurance in the community to attain better outcomes for insurers and customers.

Although these standards exist under the Code, it is clear from the comments littered throughout this joint consumer submission that many consumers are not aware of the Code, many consumers do not know about their insurer’s claims process and how they deal with complaints, IDR and EDR. More efforts are needed to produce information and education materials/resources that are effective focusing on clear and simple disclosure.

6. Issue 6 – Buying Insurance The Issues Paper notes that Australia has a variety of laws dealing with disclosure in relation to selling insurance products and that only some of those concepts are referred to in the Code. The increasing take up of internet and telephone sales of insurance products also causes problems that need to be addressed given that consumers rely heavily on what is explained to them over the telephone and that insurers use a no advice model. There are also problems with many consumers not understanding or not reading lengthy insurance PDSs. Given all these problems, the lack of simple products; clear, concise and effective information; and financial literacy need to be addressed.

Recommendation Training and education standards under the Code should be amended to require that employees and service providers inform customers where relevant of their rights under the Code including financial hardship rights.

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The Review asks for submissions on whether:

(a) the Code standards on selling insurance (section 2) remain necessary, and if so, whether they are adequate;

We submit that this is still necessary. This is absolutely essential in the light of the widespread failure by customers to understand the limits of their policies revealed in the Major Reports, and in the matters where FOS has found in favour of customers as a result of misleading information or a lack of information given at point of sale. In addition we are of the view that the Code should implement the following additional standards in relation to sales:

1. Non English speaking background clients – access to interpreters. Standards under the Code guidelines should be introduced to ensure that insurers and service providers meet the “fair, honest and transparent” (section 2.1.4) and “clear and concise and effective” (see issue 9(c) below) benchmarks particularly in the context of non English speaking background clients including setting standards for obligations on insurers when they are on notice that someone clearly doesn’t understand the terms being explained to them.

2. Giving information about the product at the time of sale (e.g. information from key facts sheet) including key conditions and exclusions in a manner consistent with the method of sale (For example, verbally when sold by telephone and via the internet in a prominent and unavoidable manner for internet sales, followed up in written policy disclosure material in either case)

3. Banning automatic insurance renewals – or in the lesser alternative improve standards for notification at point of sale and renewal (see Issue 7(d) below) and providing a clear and easily activated remedy

4. Recording the sales process and keeping it for a specified time of at least 6 years (unless the consumer specifically does not agree to the recording). This would be in line with the time limits for taking action in relation to a claim at law or raising a dispute in FOS.

(b) the Code should contain standards for retail product simplification;

Although retail product simplification may result in more easily understood products, consumer advocates query whether the larger issue is one of increasing access to “appropriate” products. For example, the Code of Banking practice obliges banks to inform their customers of appropriate banking products when requested. An example of such a section would be:

“14 Account suitability If you tell us that you are a low income earner or a disadvantaged person (regardless of whether you are an existing or prospective customer but not if you are a small business), we will provide you with details of accounts which may be suitable to your needs. We will also do this if you ask for this information or if, in the

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course of dealing personally with you, we become aware that you are in receipt of Centrelink or like benefits.”

In a similar vein, consumer advocates submit that a section should be inserted in the code to oblige insurers to inform their customers of appropriate insurance products when it becomes apparent these products may be suitable for the consumer’s needs and/or circumstances.

(c) in the absence of legislation, the Code should contain a ‘clear concise and effective’ disclosure standard;

In the interests of pursuing a best practice approach, we believe that the Code should contain a ‘clear concise and effective disclosure standard.’

(d) the Code should contain standards for phone and internet sales; From our experience, many disputes especially those in relation to allegations of non disclosure (e.g. of a previous driving history) and representations at the point of sale/inception telephone call (e.g. that someone is covered for flood) can be resolved by ensuring that there are standards for phone and internet sales. Such standards must include the recording of the sales calls and keeping it for a specified time of at least 6years (unless the consumer specifically does not agree to the recording).

(e) a model for scaled advice could be developed for general insurance and phone sales in particular;

We submit that a model for scaled advice should be developed for general insurance and phone sales in particular.

(f) the Key Facts Sheet and health warning regime might be applied to all Code retail products;

The Key Facts Sheet and health warning regime should be applied to all Code retail products. It does not make sense to have the KFS only for home building and home contents products when they are equally useful and necessary for consumers of other general insurance products such as motor vehicle insurance.

(g) the Code should contain a standard committing Code Participants to fuller involvement in financial literacy.

We suggest that insurers could contribute to financial literacy by funding research into which disclosure models are best understood by consumers and committing to changing practice based on that research.

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7. Issue 7 – Policy Terms and Coverage From the recent natural disasters particularly the flood events, issues that need to be addressed include insurance policy terms and coverage, total replacement value cover, and unfair contract terms and their application to insurance contracts. The Review asks for submissions on whether:

(a) the standard flood definition approach should be extended by a review of the current appropriateness and adequacy of the terms for prescribed contracts under the IC Act and the terms for retail products under the Corporations Act;

We agree that the flood definition approach should be extended over time to include other terms but we are concerned that this would be a lengthy process and would not be able to be reasonably completed in the current Review.

(b) the Code should contain standards for retail product simplification; Refer to our comments at issue 6(b) above. We believe that this is a commendable ambition for the Code, and would in theory support it. However, we must stress that the key issue should always be appropriate products coupled with clear and timely disclosure about the terms and conditions of those products.

(c) whether the availability and terms for total replacement value insurance can be enhanced;

Increasing the availability of replacement cover is a key objective of consumer advocates. Consumers currently carry an unfair proportion of the risk of increasing rebuilding costs (whether as a result of rebuilding prices escalating because of shortages in the wake of a disaster, or because of a change in building standards) without any capacity to adequately estimate or understand the extent of this risk, and often no resources to deal with the resulting shortfall. This in turn impairs the ability of both individuals and communities to recover effectively from adverse events (widespread catastrophes or otherwise) and impacts poorly on community confidence in insurance and the effectiveness of the private insurance market in managing risk in the community. Below is an extract (page 9-10) from the joint consumer submission in response to the Clearing the Waters discussion paper (the discussion paper) released by the Australian Government on 5 April 2011

“Sum insured policies are the most common and natural cause of underinsurance because most consumers are simply not in a position to accurately predict the cost of replacing their home and contents, and many rely on insurers to estimate these costs. This is particularly a problem after a large event like a natural disaster, when costs of repairing and rebuilding increase. Essentially, the decision between a sum insured policy or a total replacement policy is a matter of which party bears the risk of the costs of under (or over) insurance, as explained by ASIC:

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The most common home building insurance policy in Australia (known as a sum insured policy) places the risk of an incorrect estimate on the consumer... Under total replacement policies, the insurer accepts responsibility for estimating rebuilding costs.

[ASIC, Getting home insurance right: A report on home building underinsurance, Report 54, September 2005, p 20]

... We are of the firm view that a greater take-up of total replacement policies will significantly reduce the underinsurance problem in Australia.”

If total replacement value cannot be enhanced at this time, we contend that at a minimum the Code should require all insurers to have adequate tools available for consumers on their websites to be able to realistically estimate replacement value.

(d) in the absence of legislation, the Code should contain an ‘unfair contract terms’ standard;

We note that both houses of Federal Parliament (the House of Representatives in the HOR Report in February 2012 and the Senate in the Senate Economics and Legislation Committee in September 2009) as well as the NDIR Report in March 2011 all recommended that unfair contract terms legislation should apply to insurance. Given the recommendations and findings of the abovementioned reports as well as the QFCI Report in March 2012 all leading to the view that greater protection must be afforded to consumers and the release of the Government Options Paper and draft regulation impact statement, it is expected that there is an increasing likelihood of reform in this area. We agree with the proposition that any obligations in relation to unfair terms (whether in the IC Act or elsewhere), the duty of utmost good faith and the provisions of the Code should be complimentary. We welcome the observation in the Issues Paper that the doctrine of utmost good faith has not developed to fulfil the hopes of the ALRC and that the unique nature of the insurance contracts “cannot be a sufficient basis for excluding them from the national consumer law on unfair contracts” (Appendix F, p31 noting the proviso about different treatment being appropriate). We also note that in the absence of any timely legislative reform it is imperative that the Code step in to address this deficiency as far as is practicable (although we stress that we would consider this an inadequate alternative to legislation for all the reasons we have previously given and that are reiterated to some extent in the issues paper itself). We would be happy to engage in consultations on the creation of such a standard. The case studies below highlight further examples of unfair terms in insurance in the form of annual automatic insurance renewals.

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Case Study Source: ILS telephone advice Ms A’s mother passed away when she and her husband had already organised to go overseas and paid for their flights. As a result they were forced to delay their flights to attend their mother’s funeral and were out of pocket $4000. Ms M called her travel insurer to claim but was told that her claim would not be covered under the policy as Ms M’s mother was 86 and did not fit within the definition of a relative. Relative was defined under the policy as: “Relative means any of the following who is under 85 years and is resident in Australia or New Zealand: husband or wife (or de facto partner with whom you are living permanently at the same address), parent, grandparent, parent-in-law, brother, sister, child, grandchild, brother-in-law, sister-in-law, son-in-law, daughter-in-law or fiancé(e).”

Case Study Source: ILS Casework Unfair term: “For your continued protection, your insurance will then be renewed automatically, unless you contact us.” Ms W had had comprehensive car insurance for a year and her insurance was up for renewal. On the same day that her premiums were due for renewal, Ms W obtained insurance with another insurer. About a month later, when Ms W received her bank account statement, she was surprised to find that her insurer had deducted a yearly premium from her account of $436.13. Upon calling her insurer she found out that it had automatically renewed her policy without her consent and to her detriment. When she asked for a refund of the premiums deducted and requested that the policy be cancelled, she was charged a cancellation fee and only received 11 months premiums back as her insurer believed that they were on risk for the one month that it took Ms W to contact them to cancel the policy. ILS assisted Ms W to dispute the cancellation fee charged and requested the full refund of premiums. This dispute was based on the allegation that our client did not authorise her insurer to renew the insurance policy, did not authorise it to withdraw money from her credit card account to pay for the renewal and did not authorise for her credit card details to be kept on her insurer’s file. As a result of her insurer automatically renewing Ms W policy without her consent, she unnecessarily had comprehensive car insurance with two insurance companies and unreasonably suffered financial loss from having the yearly premium deducted from her credit card account and being charged an early cancellation fee. She also suffered the

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Case Study Source: ILS casework Unfair Term: “We will automatically renew your policy and continue to direct debit your premium from the payment account you gave us, unless you contact us and advise us not to renew your policy.”

stress and inconvenience associated with her attempts to cancel the policy and seek a refund. After our intervention, Ms W’s insurer agreed to refund all amounts charged but insisted that their conduct was not in breach of any laws as they provided Ms W with policy documents that had imbedded within it, a term that allowed them to renew the policy automatically unless Ms W contacted them to tell them otherwise. This was despite the fact that they had not provided any evidence to show that they had informed Ms W at the point of sale (when she applied for the policy over the internet) that her policy would be renewed automatically and that her credit card details provided at the point of sale would be used to for future automatic deductions of renewal premiums. Ms W was adamant that she thought that she only entered into one year’s insurance with and therefore ignored any notices sent to her from the insurer. We believe that this practice is an underhanded way of securing the ongoing business of unsuspecting customers. The only advantage of automatic annual renewals is that customers who are happy with their current insurer’s products and services do not have to remember to renew policies. This is heavily outweighed by the adverse consequences to consumers including:

1. Customers may end up paying for two sets of insurances over the same property; 2. Overdrawn account fees or dishonour fees if the direct debit or credit card

transaction does not go through; 3. A default credit report listing if they no longer use the same card or bank account

and or have changed addresses; 4. Customers who wish to cancel the policy may be charged an early cancellation fee

and in the worst case scenario, may even be chased by debt collectors for a bill they did not even know they incurred; and

5. Customers will be dissuaded from shopping around for a better deal at each renewal. They may feel the automatic renewal term has forced them to accept the existing insurer’s cover for another year.

If insurance was not specifically excluded from the unfair terms legislation, among the specific examples of unfair terms provided for under the Australian Consumer Law, is “a term that permits, or has the effect of permitting, one party (but not another party) to renew or not to renew the contract.” (Section 25(e) Australian Consumer Law, Sch 2 Competition and Consumer Act 2010) The ACCC has stated in their “Guide to Unfair Contract Terms Law” 2010 that a term that permits a contract to be rolled over automatically may also be unfair as “the consumer could suffer detriment with the automatic renewal of a contract without their consent.” This means that currently an automatic annual renewal term can be considered an unfair term in all other types of consumer contracts but not insurance.

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Mr E had comprehensive car insurance with his insurer for a year and his policy was up for renewal. After receiving his credit card statement, Mr E realised that his insurer had automatically renewed his policy without his consent, deducting an annual premium of $774.44 from his account. However, by this stage, Mr E had already purchased insurance with another insurer after comparing another insurer’s offer with his insurer’s previous year’s insurance premiums. When our client called his insurer to complain that he had not been given prior notice that his annual policy would automatically renew, he was offered a discount to stay with that insurer. He later refused the discount and requested a full refund. After many unsuccessful attempts at obtaining a full refund from his insurer including at least two telephone calls and a written complaint on their website feedback form, he contacted the ILS for assistance. In an attempt to avoid being charged interest by his bank, our client paid the outstanding balance deducted from his account from the insurer in question. ILS assisted Mr E to request a full refund of premiums. This dispute was based on the allegation that our client did not authorise his insurer to renew the insurance policy, did not authorise that insurer to withdraw money from his credit card account to pay for the renewal and did not authorise for his credit card details to be kept on that insurer’s file. As a result of his insurer automatically renewing Mr E’s annual policy without his consent, he unnecessarily had insurance with two insurance companies and he unreasonably suffered financial loss from having his yearly premiums deducted from his credit card account and had he not paid the outstanding amount on his credit card, his bank would have charged him interest at a rate of 19.99% p.a. Although ultimately providing a refund, Mr E’s insurer also insisted that their conduct was not in breach of any laws and condescendingly maintained that it in fact it was in the interest of consumer protection that the automatic renewal term was implemented. They also were of the view that this term was standard practice among insurers. We would argue however that what is standard practice is automatically renewing monthly premiums (where there is an expectation of repeated debits) but not automatically renewing annual premiums that happen to have been paid via credit card or direct debit. Case Study Source: ILS casework In 2003, Mr & Mrs C entered into a car insurance policy with BIG Insurer. They authorised direct debit payment of the annual premium to BIG insurer, however they understood their authorisation was only for one year of premiums and it was not made clear to them that the direct debit request authorised the insurer to deduct premiums annually. Mr & Mrs C assumed that the policy lapsed after one year so in 2004 they decided to change insurers. They also moved address and did not receive any Renewal Schedules from BIG insurer who were sending the Renewal Schedules to their last known address. It was noted

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on the Renewal Schedule that the insurer will continue taking payments by Direct Debit until otherwise advised. In 2012 Mr & Mrs C became aware that BIG Insurer had been automatically deducting their annual premiums from 2003 until 2012 by direct debit. Once they found out, they cancelled the BIG insurance policy straight away and requested a full refund of their premiums as they had effectively been double insured for several years since they changed insurers. BIG insurer declined Mr & Mrs C’s request for a full refund of all premiums. ILS assisted Mr & Mrs C to negotiate a full refund of premiums since 2004, amounting to over $6000. We note that we are particularly concerned with one-off payments for purchasing insurance usually made pursuant to a telephone authorisation of the deduction from a particular account/credit card which is later used without consent or adequate notification to deduct future yearly premiums automatically. Premiums that are deducted by monthly instalments involve an expectation of continuing deductions and therefore present different issues upon renewal. While there are arguments for allowing premiums deducted monthly to roll over into another year this should only be done after clear disclosure at both the point of authorising the original direct debit and upon renewal. At the very least there should be a commitment to automatic refunds of premiums in either case where there has been an automatic renewal and either:

1. The customer can show they purchased insurance from an alternative insurer; or 2. The customer can show that he or she had disposed of the asset(s) covered by the

relevant insurance policy The two cases below highlight this issue of monthly automatic insurance renewals. Case Study Source: ILS advice Mr F had home & contents insurance with an insurer 6 years ago. He and his wife split and the house was sold. However, he continued to insure his business with the same insurer. Recently (May 2012) he discovered that monthly premiums for his home & contents insurance over the house that was sold continued to be direct debited for all that time. In total this amounted to $2,826. He had no idea that was still happening. Mr F did not realise earlier because he had insurance with insurer X in relation to his business (hotels/pubs) and assumed that entries for insurer X in his bank statement related to the business insurance. Any notices sent to the property that was sold would not have been received by Mr F. Mr F believes that no effort was made to contact him on the address that insurer X had for him in relation to his business insurance, which was also with insurer X and he was not aware that the policy was automatically renewed or that it would continue to be automatically renewed and premiums direct debited from his account even after he had sold and left the property.

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Mr F believed that after completion of sale, the purchaser would have responsibility for maintaining insurance on the property. When Mr F contacted insurer X. To resolve the dispute, insurer X offered Mr F the last 2 years worth of premiums which were deducted monthly. Despite our offer of assistance however, Mr F did not want to pursue a refund of the remaining 4 years of monthly premiums. Case Study Source: ILS telephone advice Ms B and her partner had a house whose building and contents were insured. The house was sold 7 years ago. At the time of sale, Ms B’s partner called the insurer to cancel the policy. However, at the time of Ms B’s call to us, her partner had just realised that their insurer had been direct debiting monthly premiums from his account for all this time after the house had already been sold. Ms B tried to ask for a refund of the monthly premiums. Her insurer responded by stating that they required the original contract for the sale of land which Ms B no longer had. Ms B’s conveyancing solicitor had also destroyed their file and would not have kept originals anyway. On advice from ILS, Ms B contacted her insurer’s IDR. Her insurer’s IDR agreed that they won’t need the original contract of sale and refunded premiums to Ms B but no interest on the amounts paid.

(e) other terms in insurance contracts, in addition to those currently the subject of derogation notices under the IC Act, should also be the subject of derogation notices under the Code;

We believe the terms that are currently the subject of derogation notices under the IC Act should be the subject of derogation notices under the Code. Any other terms in insurance contracts should be consulted on prior to their inclusion in the Code and should clearly spell out the duty to clearly inform and what that means, that is, it is not enough to rely on the policy/PDS unless it is prominent and not buried away in the fine print.

Recommendation The Code should be consistent with and build upon any legislative requirements in relation to unfair terms. In the event that no such legislation is enacted, appropriate standards should be incorporated into the Code.

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(f) any of the recommendations in appendix G, paragraphs 7.6-7.9 should be implemented.

We strongly support NDIR Recommendation 32 – That all home building insurance policies providing sum insured cover be modified by the end of 2014 so as to include replacement value cover in the event of total loss of the home. Additionally that during the transition period insurers consider how the design features of home building replacement value policies should respond following a natural disaster, including the conditions under which cash settlements are to be offered and finalised. We note that NDIR Recommendation 19 in relation to home contents insurance was inextricably connected to other recommendations involving a central government backed pool which absorbed some of the flood risk taken on by insurers as a method of shifting some of the expense of providing insurance to those in flood prone areas away from householders and the industry. We support the recommendation in that context. We also note that NDIR Recommendation 31 is likely to be taken up to a certain extent by banks in the next iteration of the Banking Code of Practice. 8. Issue 8 – Premium – Payment and Cancellation The Issues Paper seeks to address the harsh operation of section 62 of the Insurance Contracts Act where if one instalment payment of premium is overdue for at least 1 month, an insurer can cancel the policy without informing the insured. A section that is equally harsh and needs addressing is section 39 where an insurer can refuse a claim simply where a policy is on foot but the premium remain unpaid for 14 days. These sections are subject to insurers clearly informing insureds of their effect at policy inception (which if it is done is currently embedded in lengthy PDSs that consumers either do not read or do not understand). The Review asks for submissions on whether:

(a) the code should contain a standard for an insurer to notify an insured before cancelling an instalment insurance contract;

We believe that the Code should contain a standard for an insurer to notify an insured before cancelling an instalment insurance contract. Additionally, the Code should also require notification after a policy has been cancelled. Our casework experience is that socially and economically disadvantaged consumers are more likely to enter into instalment contracts of insurance, often ending in disputes with insurers over whether the policy was on foot at the time of an insured event. Given the ease of electronic communications, there are good public policy reasons to support customers being given a warning prior to cancellation and being advised of such, following non-payment of an instalment. We are aware that some insurers do notify insureds after non-payment of a premium instalment, and see no reason why this shouldn't be standard practice across the industry.

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Given the harsh result if a premium instalment remains unpaid, a fair notice framework might involve two notices being provided to an insured after non-payment of an instalment before any right of cancellation is to accrue to the insurer. The first notice should be at least 14 days after non-payment, and the next should be 14 days later, to allow for two full periods of Centrelink benefits of salaries for a consumer to remedy non-payment. Equally, opportunity should be given for consumers in financial hardship to enter into a financial hardship arrangement to avoid cancellation of policy (section 62) or the right to avoid liability (section 39). Equivalent obligations have existed in relation to banking and energy products for some time. Progress could be made possibly via General Insurance Code of Practice. Notices about non-payment could invite the consumer to call the insurer to discuss their options if payment is not possible in the period required. It is our understanding that insurers currently do work with consumers in financial hardship. This should be reflected in the Code. Some options that insurers should reasonably consider are:

1. part payment of a premium with the remainder of the premium and the usual premium to be paid next month

2. delay payment of a premium with a double premium to be paid the next month 3. part payment of premiums for a few months then full payment of the outstanding

value of the insurance premium in full. Consumer interests and legal certainty are best served by additional notice prior to cancellation, which will protect consumers before any harm is done. This ensures continuity of the contract between existing insurers and consumers and greater consumer confidence – which we suggest is also good for business. Additionally written notice that the policy has been cancelled should also be provided to end any doubt about whether the policy has been cancelled and to give finality to this issue. In our experience a notice about a dishonoured or otherwise unsuccessful instalment payment will often contain information about how the situation can be rectified. For example, we will attempt to debit your account again on a particular date. The customer may then be under the mistaken impression that the situation has been rectified as a result of a reasonable belief that there will be sufficient funds in the account on the specified date. However, other events may intervene (such as a mistaken double debit by another merchant or an intervening financial emergency) to mean that the rectification never occurs. For a customer the consequences of being accidentally uninsured in this manner are severe and for some disadvantaged customers, catastrophic (in the sense that they will possibly never recover from the loss financially or be able to replace the asset). It is therefore vital that customers are told not only that their policy will be cancelled unless certain events occur, but that it has been cancelled, so that there can be no confusion about the issue. We note also that disadvantaged consumers are also more likely to be transient and change addresses frequently. While we appreciate that the onus is on the customer to notify the insurer of their change of address, again there can be a lot to think about for someone who moves frequently, and personal administration can be a low priority for clients in crisis

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situations (such as escaping domestic violence or dealing with mental illness). Even a delay in notification can have serious consequences if an accident occurs in the interim. For this reason, notices involving motor vehicle insurance in particular, should be sent both electronically and in hard copy to the last known address. This would reduce the probability of the person missing the notice because they would have had to have changed phone or e-mail address AND physical address at the same time to miss the notice. Given that the question of the detail around the communication of instalment contract cancellations was not dealt with by way of legislative review but specifically referred to the Code Review, the matter must be so dealt with in the Code Review. For case studies on this issue, please refer to ILS’s submission in the 2009 review of the Code at pages 21 – 23. More recent case studies (2012) can be found below. Case Study Source: ILS telephone advice Ms P’s insurer cancelled her car insurance policy for non payment of monthly premiums in February 2011. However, Ms S only found out about the cancellation in May 2012 when she tried to lodge a claim for a motor vehicle accident. The car was under finance and technically Ms S was also in default of her finance contract as the car was not insured since February 2011. Case Study Source: ILS telephone advice A female caller had a motor vehicle accident. Her insurer rejected her car insurance claim because the monthly premiums were more than 14 days overdue. They said her policy had lapsed. When they tried to direct debit premiums 2 months ago the direct debit failed. She was apparently sent a letter about the direct debit failure but claims she did not receive it. Her insurer waited to take the next monthly payment and as this also failed, they cancelled the policy without any further notice. Case Study Source: ILS telephone advice Mr O’s wife was involved in a motor vehicle accident. Mr O made a claim on his car insurance policy but found out that his policy had lapsed. The insurer advised that they tried to make the direct debit payments but it did not go through successfully. They also sent him a notice about the direct debit failure. They eventually cancelled his policy without any further notice. Mr O admits that he had changed address and had forgotten to tell the insurer but insists that the insurer has his email address and mobile so could have informed him by email or text message as well.

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(b) any of the recommendations in Appendix G, paragraph 8 should be implemented;

The ILS has received a number of calls in the past 12 months from people concerned about their premium increases. These increases have ranged from increases of a thousand dollars or so to premiums of thirty thousand dollars at the extreme end of the scale. We have also had complaints about:

• risk assessed by postcode when the consumer’s home is on the top of a hill in an otherwise flood prone locality;

• concerns about the lack of transparency about how flood risk has been assessed; • consumers indicating that they will opt out of either flood cover specifically or

insurance generally because they cannot afford the premiums. While the NDIR recommendations are only partially implemented, premium affordability will continue to be a major issue and there is a significant risk that the experiences of 2011 in Queensland and Victoria will be repeated and there will be a large proportion of uninsured losses in the event of future floods. HOR Recommendation 13 should also be implemented.

(c) IRAG should be given any specific direction on these issues. See above. 9. Issue 9 – Claims The Issues Paper seeks to address consumer concerns around their understanding of their insurer’s claims process, their awareness of their right to make a claim, claims time limits, lack of adequate communication from insurers about claims, the failure by insurers to provide reasons or evidence for decisions, and the claims assessment process and outcomes.

Recommendation

1. The Code should improve notice requirements particularly on instalment contracts including at least two notices prior to cancellation. The first notice should be at least 14 days after non-payment and the next should be 14 days later. Best practice would dictate two different modes of communication be used where these are available (e.g. postal, email, sms etc.)

2. Post cancellation notice should confirm the policy is cancelled in writing and must be sent to the customer on the date that the policy is cancelled.

3. The Code should require that insurers deal with financial hardship prior to cancelling a policy.

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The Review asks for submissions on whether: (a) The Code claims handling standards should be based more expressly around

the stage of a typical claim: lodgement; supply of information by claimant; investigation; assessment; and repair, replacement, payment;

Consumer advocates support this approach. We believe that the Code’s claims handling provisions based on the stages of a typical claim would make the Code more easily understood by customers and more readily accessible to those customers who only want to know how to use the Code to help them with problems that they are experiencing at their specific stage of the claims process.

(b) The industry’s practices and Code standards could improve customers’ awareness of their rights under their insurance policies;

We agree that in addition to stating various rights that consumers have, the Code must also require the industry to improve their communication to customers of their rights under their policies at specific stages in the claims process. Refer to the ILS submission to the 2009 Code review beginning at page 36 of that Submission in the section titled “Claims Handling and Complaints Handling” and in particular, the subsection on “Delays and Indefinite Time Frames.” Code Participants should be required to notify the claimant about the IDR and EDR processes within two months of lodgement of the claim if the insurer has not made a decision on the claim by this 2 month period. The experience of consumers in the 2011 flood disasters was often total confusion about what to expect. Simple information about the process and the role of various players such as loss assessors and experts such as hydrologists would have been of enormous benefit to insured customers already dealing with great loss and upheaval. Practical information such as:

• When can I expect an answer? • Who do I have to let in, why, how will I identify them and what should I give them

access to? (See also comments above in relation to information about service providers at 3.3 above)

• What should I do in the meantime (practical information relevant to the protection of evidence and duty to mitigate loss)?

• What information will the insurer require of me and why? • Who do I call if I have a question? • What can I do if I am unhappy with the process or the insurer’s decision?

Refer also to discussions on fraud investigations and investigations generally at section18.3 below. We also submit that:

1. Despite recent changes to the Code, the right to claim section in the Code still needs to be strengthened to stop all discouragement of claims.

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2. If claimants have not already been provided with the factsheet or full information about the claims process, then claimants should be provided with information about the dispute resolution process (including IDR and EDR) if the claim is not accepted in full within 2 months of making it.

In relation to point 1 above, the original communication from the ICA indicated that members had agreed to this change subject to an accompanying note being inserted into the Compliance Guidelines for the Code that “advising the customer in response to an inquiry that a policy does not provide cover for a loss will not, of itself, constitute an act of discouragement”. Consumer groups have grave concerns about the regular reports received by assistance services that customers have been told over the phone “not to bother claiming” as they would not be covered. This is particularly problematic when there are complex facts, difficult arguments about the meaning of policy wording and its application to the circumstances, and possibly expert evidence required. The suggestion that these things can all be considered in a front line phone call is ludicrous and yet this is exactly what happened in many cases in the aftermath of the floods. Insurers have argued that they do not want to inadvertently “mislead” people into wasting their time claiming in circumstances where it is patently clear the policy will not respond to the risk (for example, claiming your kitchen burning down on your motor vehicle insurance when your car was not even in the vicinity at the time). Conveniently, there is no equivalent concern about misleading people into not claiming when the policy may in fact respond upon further investigation. Many claims that have ultimately succeeded in IDR or FOS began with a phone call in which the customer was told they would not be covered. Experience has demonstrated that the discretion to decide when to discourage a claimant because their claim cannot possibly succeed and when to encourage a customer to lodge a claim cannot be left to frontline staff. We have not seen the relevant Compliance Guidelines. If they do in fact state that ‘telling a customer that a policy does not provide cover for a loss will not, of itself, constitute an act of discouragement’, we think that where an insurer states as such, a consumer will (by the very nature of the statement) be discouraged from making a claim, in direct contradiction to the additional words in clause 3.1. Further, we are concerned that people should be allowed to lodge a claim in circumstances in which the policy is alleged to have lapsed due to non-payment of monthly premium instalments (see our other comments on this issue generally at Issue 9 above). We have on occasion been able to successfully argue that a policy was not properly cancelled (either because the disclosure was inadequate in relation to the right to cancel or because the insurer acted contrary to an intention to cancel by accepting subsequent premiums). In such circumstances it is vital that the consumer be permitted to lodge their claim and be informed of their rights to IDR and EDR so that the cancellation and claim refusal can be disputed simultaneously.

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Regarding the right to claim, the wording currently in the Code at section 3.4.3 states:

If you ask us whether such a policy provides cover for a loss you have suffered, we will: a) ask you whether you would like to lodge a claim, b) explain that if you do, the question of coverage will be fully assessed, and c) not discourage you from lodging a claim even if we are of the view that it is unlikely to be accepted.

Consumer advocates suggest that an additional paragraph d) should be inserted along on the following lines:

d) not suggest that your policy does not provide cover for a loss except where we form that opinion after properly assessing a claim.

(c) The recommendations on time limits in paragraph 10.97 and 10.98 above

should be implemented; We believe that the following recommendations on time limits should be implemented:

1. A claim not determined within four months should automatically become an IDR complaint. The consumer may not comprehend the significance of the invitation to escalate the matter, or may be verbally discouraged from doing so even as the invitation is sent in writing. Given the documented difficulties with insurers meeting the current time frames in the Code (i.e. the requirement to keep a consumer informed as to progress of their claim every 20 days), we think that an automatic process would make it more likely a consumer is actually referred to IDR at the 4 month mark.

2. A seven rather than six month period for reopening a natural disaster claim from the date of the natural disaster event regardless of when the initial claim was finalised (recommendation 41 of the NDIR Report); and

3. A standard to notify the claimant on the lodgement of the claim of the process and timing of the claims assessment.

4. A commitment to notify the customer of their rights to review by IDR and EDR if the claim has not been accepted within 2 months from the date of the claim.

(d) The Code’s standards on skills, experience, independence and training of service suppliers should be enhanced;

We agree with this approach.

(e) The recommendations on reasons and evidence on claims denials in

paragraph 10.107 above should be implemented; We believe that the following recommendations on time limits should be implemented:

1. Claim denial letters should conform to the Code, section 3.5; 2. Claim denial letters should identify or list the information relied on for the denial

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3. Communications about reasons and information about denials should demonstrate fairness and transparency;

4. The Code should have guidelines for good industry practice on giving reasons for a claim denial; and

5. The Code should have guidelines for how legal professional privilege and ‘special circumstances’ apply to allow information to be withheld.

(f) The recommendations on assessment process and outcomes in paragraph

10.111 above should be implemented; and Consistent with our views above, we believe that the following FOS QF Survey recommendations I to J on assessment process and outcomes should be implemented:

1. The development of guidelines concerning the interpretation and application of the Code such as guidance related to the type of information that should be provided to policy holders by Code Participants when a claim is lodged; the explanation of the claims handling process provided to customers and the disclosure of customer rights and responsibilities during the claims handling process. We are of the view that any guidelines developed must:

a. Have a consultation process; b. Be part of the Code; c. Be published; and d. Be enforceable.

2. A standardised approach to claims handling, such as the development of generic

letters and call centre scripts can allow insurers the opportunity to flexibly and more efficiently respond to a natural disaster. To avoid and alleviate the barriers identified in the FOS QF Survey, a standard should also be created to provide access to the claims handling process for people from non-English speaking backgrounds, people living with a disability or mental illness and elderly customers.

3. Codification of the record keeping on customer files accountabilities of Code Participants in relation to claims handling during a disaster at a minimum. The ability to ensure compliance and reporting against ethical, behavioural and conduct obligations as well as on the timeliness of actions taken in processing claims within the Code, such as those related to fairness, transparency, and the balancing of interests, is of equal importance and may need more prominence during times of catastrophe.

4. Code Participants should incorporate the ethical aspects of Code compliance in all their claims handling training modules, including references to notions of fairness and transparency.

Additional related issue - Timeliness of commissioning expert reports Recent amendments to the Code addressed the time within which expert reports, such as hydrology reports, should be provided to the insurer and the 10 days provision above addressed the provision of those same reports to the customer/insured. What was not

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addressed was the timing of the commissioning of the report by the insurer in the first instance. While insurers have argued that it would be prohibitively expensive to commission hydrology reports for example for every single property affected by a large storm/flood event, the experience after the Queensland floods was that some customers who had been clearly disputing their claim refusal for some 10-12 months had still not had an hydrology report commissioned for their particular property. By this time most, if not all, of the physical evidence had disappeared as a result of cleanup work, subsequent weather and other local development/changes. We submit that external expert reports should be commissioned as soon as their relevance becomes apparent and at the very latest once an IDR dispute has been lodged indicating a dispute which could be resolved by external expert report evidence. Case Study Source: ILS casework Ms W’s insured property was inundated during the recent Queensland floods. Similar to the above case study, the insurer had not commissioned an hydrology report until after we assisted Ms W to lodge in FOS and even then, their first notice of response, simply relied on existing information. A report was finally produced on 7 December 2011, almost 12 months after the inundation event. This report confirmed that damage to Ms W’s property was entirely caused by flood water. FOS determined that this outcome was reasonable. Case Study Source: ILS casework Mr W’s house was inundated during the recent Queensland floods in 2011. His insurer had rejected his claim on the grounds that the damage to his insured property was due to flood, which is excluded under his policy. Of concern in this case was that the insurer did not commission an hydrology report until after a FOS complaint had been lodged. This was despite the fact that an outstanding issue in dispute required the commissioning of such a report - our client had pointed out the issue of stormwater runoff coming in from directions other than the river to the initial assessor, and this was even noted in the assessor’s report which the insurer relied on in its IDR rejection in March 2011. This issue was raised in ILS’s IDR complaint, and the claim was again rejected on 29 September 2011, without any hydrology report being commissioned. The insurer later performed a simple desktop hydrology report (performed without any actual inspection of the property but simply on a computer) dated 12 Dec 11 and this report did show there was stormwater runoff before the flood waters arrived. A determination in the Financial Ombudsman Service resulted in the insurer being required to pay our client for the damage caused by stormwater runoff damage before the arrival of flood waters and also to pay interest for delay. It is concerning that had this simple desktop hydrology report been conducted earlier, our client’s claim would not have been rejected outright and he would not have had to go through the experience of claims rejection, IDR and later FOS.

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Case Study Source: ILS casework Mr B’s insured property was inundated during the recent Queensland floods. In his case, no hydrology report was completed until over a year after the inundation. The insurer failed to respond to ILS’s request for reports at an IDR level and we were required to assist Mr B to take the matter to FOS. An hydrology report was eventually completed without attending the property or interviewing the insured. This case is currently in FOS. Case Study Source: ILS casework Mr P’s insured property was inundated during the recent Queensland floods. In this case, no hydrology report was completed for over a year after the inundation. The insurer sent an hydrologist to the property and they didn’t consider the issue of water leakage, even though the ILS had previously alerted the insurer that damage had resulted from an insured event. The hydrologists requested the insured’s permission to return to the property to gain further evidence on this issue 8 months after the initial inspection and after the insured lodged in FOS. This issue was raised with the ICA earlier this year when the out of session changes to the Code arising from the disaster reviews were being contemplated. The response was that ‘we understand the point about the commissioning date for an external report being important. However, given the variety of circumstances that may arise in a catastrophe claim, we couldn’t see what could be put into the Code apart from an anodyne statement about reports being commissioned “in a timely manner”’. We are willing to consider further options as part of the next review of the Code.

10. Issue 10 – Claims, Complaints and IDR The Issues Paper seeks to resolve consumer concerns surrounding insurers’ failure to adequately inform consumers about IDR, complaints handling procedures and related time frames.

Recommendation The Code could incorporate this principle with words to the effect that we will commission expert reports in a timely manner and at the very latest once an IDR dispute has been lodged indicating a dispute which could be resolved by external expert report evidence.

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The Review asks for submissions on whether the Code IDR standards, and to the extent applicable, ASIC RG 165 should:

(a) require the Code Participant to notify the claimant about the IDR processes at the time a claim is lodged;

Code Participants should be required to notify the claimant about the IDR and EDR processes within two months of lodgement of the claim if the insurer has not made a decision on the claim by this 2 month period.

(b) define complaint more precisely and confine it to matters under a contract of insurance under the Code and impose time limits on the making of a complaint;

We do not believe that this approach is necessary or helpful to customers. A broader definition is best and would be more readily understood by customers. Limiting a complaint to the insurance contract may not cover complaints about the conduct of service providers and other events that occur outside of the contract including for example, representations and conduct of the Code Participants just prior to policy inception which may have been relied on by customers to enter into the policy. Limiting the definition of complaint is also not consistent with the International Standards on complaints handling. We also do not consider that imposing time limits on the making of a complaint is required or helpful. Further, this would be out of step with developments in other parts of the financial services industry. We are concerned that if time limits were imposed it would prevent or hinder consumer access to complaints handling procedures in that:

1. Customers are unlikely to be aware of or understand that a complaint is only a complaint if they make the complaint within a certain time limit.

2. Despite the best education and training of employees and service providers and any attempt at written disclosure, it is still likely that customers will not be fully informed of the nature and effect of any limitations on what constitutes a complaint such as time limits.

3. Issues may arise between when events giving rise to a complaint occurred or when the event itself occurred and whose responsibility would it be to prove that they were only aware of the events giving rise to the complaint at a certain time. Placing the burden of proof on consumers trying to make a complaint is inherently a barrier to them making the complaint.

(c) set out standards for IDR time frames;

We submit that the Code and ASIC RG 165 should set out standards for IDR timeframes. Chief amongst these timeframes and consistent with the NDIR Report recommendation 42, we believe that IDR complaints should be finalised within 45 days as per the ASIC RG 165 and that time limits on IDR complaints should commence immediately after a policyholder notifies the insurer of the complaint as was recommended in recommendation 42 of the NDIR Report.

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(d) set out guidelines to ensure an independent internal review as part of the IDR

processes; We consider that the Code and ASIC RG 165 should set out guidelines to ensure an independent internal review as part of the IDR processes. These guidelines are necessary as in our experience, customers are very wary of any veneer of independence when referring matters back to an insurer after that insurer has already made a decision against them. As stated in issue 9(f) dot point 1 above, any guidelines must have a consultation process, be part of the Code, be published and be enforceable. However, where an insurer has chosen to deal with a complaint without genuine independent review, this should not be cause to delay the complainant’s access to EDR for a further 45 days.

(e) require the IDR process to refer new information to any external expert who was involved in the matter for further review;

We submit that the Code and ASIC RG 165 should require the IDR process to refer new information to any external experts who were involved in the matter for further review. However a different external expert should be appointed where the expertise or work of the original expert is the subject of challenge by the customer.

(f) require reasons in all cases and the supply of relevant information in all cases; We submit that the Code and ASIC RG 165 should

1. Require written reasons in cases where a claim or complaint is determined unfavourably against the claimant or complainant. Based on the principle of procedural fairness, these written reasons should allow the claimant or complainant to understand why an unfavourable decision has been made and should provide them with an opportunity to challenge a declined claim in IDR or take unresolved complaints to EDR.

2. Require written confirmation that a. a claim has been accepted advising the claimant of what if anything they

need to do from that point onwards; b. a complaint has been determined in the complainant’s favour advising the

complainant of what if anything they need to do from that point onwards; 3. Require the supply of relevant information with written reasons, only where an

unfavourable decision has been made against the insured in relation to a claim and complaint but provide for the supply of relevant information in all other cases on request.

Consumers often do not have adequate information to be able to properly advance a complaint. It is essential that consumers have a right in the Code to access information and documents that they reasonably need for the complaints process.

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We are of the view that the Code should have a clause requiring information to be provided on request including:

1. Information and documents relied on in rejecting a claim; 2. Copies of the PDS and insurance certificate; 3. Copies of any reports relied on by the insurer; and 4. A copy of any recordings and transcript of the sale of insurance.

(g) be consistent with the complainant’s rights to reasons and information from the Code Participant in EDR;

We strongly agree with this proposition. It does not represent good practice for a consumer to have to go to EDR simply to get reasons and information. The Code should reflect any EDR requirements into the Code.

(h) be more consistent in relation to the matters in paragraph 10.120; With respect to the matters in paragraph 10.120 of the Issues Paper, we make the following submissions:

1. “A complaint does not seems to be limited either in content or time. There is no definition of complaint in the Code – the Code adopts the AS ISO 10002-2006 definition328 - and no time limit under the Code within which it should be made.” See our comments above on this point at issue 10(b).

2. “The insurer must respond in 15 days if it has all necessary information and has completed its investigation. The Code standard does not say expressly what happens if those two criteria are not met but does suggest that the Code Participant will agree to alternative time frames. If alternative time frames are not agreed, the complaint becomes a dispute and the insurer refers the ‘dispute’ to a different but appropriate employee.”

We agree that the Code should be more consistent in relation to time limits for IDR

Recommendation The Code is amended to state: An insurer must provide the following documents and information within 14 days of a request by a customer:

1. A copy of the PDS; 2. A copy of the insurance certificate; 3. A copy of any report relied on by the insurer; and 4. Any recordings and transcripts held by the insurer of phone conversation between

the insurer and the customer.

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complaints. At present, an insurer has between 15 (section 6.2 and 6.6(c) of the Code) and 45 days (section 6.10 of the Code and ASIC RG 165) to make a decision before a complainant can refer the matter to FOS. Of concern is that often when IDR complaints extend beyond 45 days, complainants are not informed of why, not provided with progress updates, not provided with any alternative time frames let alone be given an opportunity to decide whether to agree to such alternative time frames and most importantly, not informed of their rights under the Code or ASIC RG 165 about the 45 day time limit to refer the matter to FOS.

If alternative time frames are provided and not agreed to, we consider it inappropriate for the insurer to refer the matter to a different IDR employee. Doing so or reclassifying a complaint as a dispute merely perpetuates the evil of multi-tiered IDR. Instead, the complainant should be informed of their rights to take the matter to FOS.

At present however, this is also not the solution as even after an informed consumer lodges a dispute in FOS, FOS will refer the matter back to the insurer’s IDR where the insurer’s IDR is given another 28 days to consider whether they want to settle or provide written responses to the complainant’s FOS dispute. We understand FOS’s reasons for imposing this additional step (to try to promote settlement) before a dispute is allocated to a case officer for investigation, but we suggest that the overall time a complaint remains in IDR (whether that be from the consumer’s complaint to IDR or a FOS imposed referral to IDR) should not be more than 45 days as is required by ASIC RG 165. Refer also to our discussion below at issue 11(c) on why the word ‘dispute’ should be abolished in the context of complaints handling practices. The abovementioned extended time frames for IDR disputes must be addressed by the Code and we would suggest that the only way this can be done successfully is by consulting FOS as well. See also the ILS submission to the 2009 Code review section titled “the Internal Dispute Resolution (IDR) Trap” beginning at page 40 of that submission.

3. “Preliminary stakeholder consultation indicates that it is good practice for the decision-maker to have an opportunity to reconsider the decision, ideally with the benefit of any new material the complainant submits.

The decision-maker’s review might resolve the matter although it is reasonable to infer from the statistics that it is not a usual result.”

In theory, we would agree that in the interests of procedural fairness, the Code should be made more consistent in relation to the review of additional information. However, given our concerns in relation to the already extended IDR time frames,

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this must be done in a way that ensures that altogether, the time a complaint remains in IDR must not exceed 45 days.

4. “If the decision-maker’s review does not resolve the matter, the complaint is referred

elsewhere within the Code Participant. Practices vary about how and to whom that referral takes place.”

Again on this point, we are concerned with the extended time frames as discussed above and that any referrals to elsewhere in the IDR chain perpetuates multi-tiered IDR increasing the likelihood that a complaint will be lost or that a complainant will give up their complaint in the IDR quagmire.

Below is an extract of an insurer’s car insurance PDS currently available on their website. It clearly details a three step internal dispute process before the insurer informs a consumer about EDR.

“If you call, you will be told the name of the most appropriate person to deal with the matter. If you write to us, your letter will be directed to the correct person. In either case your complaint will be handled by the person who has the authority to deal with it. This person will consider the facts and contact you to resolve your complaint as soon as possible, usually within 24 hours. If this person is not able to resolve the matter to your satisfaction, then it will be referred to a Dispute Resolution Manager who has the authority to deal with it and you will be contacted within five business days. If the matter is still not resolved to your satisfaction, then it will be referred to the Executive Manager. You will be sent our final decision in writing within 15 business days from the date you first made your complaint. If your complaint remains unresolved We expect our procedures will deal fairly and promptly with your complaint, however if you remain dissatisfied you have external dispute resolution options available to you such as mediation, arbitration or legal action. You can also raise certain complaints directly with the Financial Ombudsman Service. This is an independent body and its service is free to you. We agree to accept the service’s decision. You also have the right to take legal action if you don’t accept the service’s decision.”

5. “The complainant is entitled to have the insurer’s response reviewed by another

employee of the insurer – the complaint then becomes a dispute.”

See our discussion below at issue 11(c) on the need to abolish the additional

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category of a ‘dispute’ in the context of IDR.

6. “Then the Code Participant has 45 days, probably timed from the initial complaint, in total to resolve the matter, whether it remains a complaint or becomes a dispute.” See our earlier discussion on the need to ensure that the 45 days is strictly applied to ensure that the amount of time a complaint remains in IDR cannot exceed 45 days regardless of whatever other IDR or review process or FOS referral to IDR process is undertaken.

7. “The complain[an]t is entitled to reasons but it is not clear whether that is the case only if information is withheld by the insurer; the complainant has some access to information the insurer relies on in assessing the complaint.” We agree that this issue needs to be more consistently dealt with in the Code. Refer to our discussion issue 10(f) above.

8. “The complainant is entitled to information about how and when to access an EDR scheme – this was, for the 2011 CCC review, the most frequently breached Code standard.”

We agree that this issue needs to be more consistently addressed in the Code. Refer to our discussions above on the provision of information (including claims handling, IDR/complaints handling and EDR) on claimants rights at the time they lodge a claim at issues 9(b), 10(a) and 11(b).

(i) and whether:

i. the recommendations on independence and time limits in paragraphs 10.127 above should be implemented;

The following recommendations should be implemented:

1. IDR should be independent of the claims department and the initial claims decision maker.

2. The time limit for how long a complaint remains in IDR should run from the time the oral or written complaint is made to the insurer and should not exceed 45 days.

ii. the recommendations on reports in paragraphs 10.128 above should be

implemented. We submit, as was recommended in the HOR Report and stated in the Issues Paper, that FOS report the annual number of IDR cases for each Code Participant publicly and to ASIC.

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11. Issue 11 – Claims and disputes, IDR and EDR The Issues Paper seeks to resolve consumer concerns surrounding insurers’ failure to adequately inform consumers about EDR, time frames, monetary caps, and whether the terms “complaints” and “disputes” need to be more tightly defined. The Review asks for submissions on whether the Code EDR standards, and to the extent applicable, ASIC RG 165 and the FOS terms of reference, should

(a) be promoted better by Code Participants and FOS; We submit that the Code EDR standards, ASIC RG 165 and the FOS Terms of Reference should be better promoted by Code Participants and FOS.

(b) require the Code Participant to notify the claimant about the EDR processes at the time a claim is lodged;

We submit that the Code, ASIC RG 165 and the FOS terms of reference should require Code Participants to notify the claimant about IDR and EDR processes if they have not made a decision on a claim within two months of the lodgement of the claim. A particular challenge for consumers using insurance is getting from “claim” to “dispute”. It is possible to be trapped in a claims process and never get to a dispute no matter how much delay occurs. The Code needs to address this issue. This problem is why it is so vitally important that a “complaint/dispute” is defined very widely to include any indication of dissatisfaction. Any narrower definition would just make it harder for consumers to raise a complaint/dispute. It is also why consumers must be told 2 months after a claim has been lodged about their rights to raise a dispute/complaint and go to EDR if the dispute is not resolved (whether or not they have indicated that they wish to complain or raise a dispute - a claim that has not yet been accepted should be sufficient to trigger the requirement to provide this information).

(c) define complaint and dispute more precisely and confine it to matters under a contract of insurance under the Code and impose time limits on referring a dispute to EDR;

We suggest the removal of the word ‘dispute’ from the Code. Customers do not understand the current distinction between Complaints and Disputes. The Code currently defines dispute as an unresolved complaint. Therefore, the following form of words can be used to replace the word dispute:

1. unresolved complaint; 2. unresolved complaint with us; 3. complaint with the Financial Ombudsman Service.

We are also of the view that the two Code sections “Internal Dispute Resolution – Complaint” and “Internal Dispute Resolution – Disputes” makes it more confusing for consumers to understand what their rights are in relation to internal dispute resolution. Arguably it also

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seems to provide for multi-tiered IDR processes which we contend must be avoided as it results in the disheartening phenomena of people being trapped in IDR, complaints getting lost and customers giving up. There should only be one section for Internal Dispute Resolution. These two sections as they currently exist in the Code should be amalgamated and the best of both should be retained including the requirement to provide written reasons when a complaint is being responded to. From our experience the ambit of complaints are as follows:

1. complaint regarding a matter prior to or outside of any claim lodgement (e.g. unreasonable conduct of insurance representatives in discouraging claims from being lodged, complaints regarding unreasonable increase in premiums)

2. complaint regarding the conduct of Code Participants (insurer, service providers, external experts etc) while a claim is in progress (e.g. unreasonable conduct of assessors during investigation of a claim)

3. complaint regarding conduct of Code Participants after a decision on a claim has already been made (e.g. dodgy repair works of insurer authorised repairers)

4. complaint regarding the unreasonable denial of a claim 5. complaint lodged with FOS that ultimately gets referred back to the insurer’s IDR

All of the above complaints should be directed to an insurer’s IDR department and there is no need to involve the word ‘dispute’. Where complaints 1-4 above remain unresolved, customers should be informed of their rights to take the matter to External Dispute Resolution. They should not be forced to go through another stage of Internal Dispute Resolution by the insurer. Unfortunately, FOS requires them to go back to IDR via complaint 5 above. As we suggested earlier at issue 10(h) dot point 2, the only real compromise on this point is to ensure that the 45 days time limit in which a complaint remains in IDR must be strictly adhered to and incorporate all of the above instances of complaints and any other instances such as review of additional information or review of cases where alternative IDR time frames are not agreed to. In any event, if the above procedure is adopted, there will not be any need for multi-tiered IDR processes or any need to have separate Code sections dealing with complaints and those dealing with disputes.

(d) be amended in accordance with the matters set out in paragraphs 10.134-10.137 above;

The following recommendations should be accepted:

1. ASIC RG 165 should be amended to require that information about claimant’s rights to EDR be provided if a claim has not been accepted after two months from the date of lodgement.

2. FOS develop a disaster plan to have a physical presence in an affected area for three months after a natural disaster

3. Free legal assistance and consumer advice for claimants particularly in natural disasters

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4. ASIC RG 139 to be amended to require FOS to report the annual number of EDR cases for each insurance company and on dispute resolutions in a natural disaster.

(e) be amended to increase the monetary cap on Code EDR matters:

i. for all Code products; ii. for retail Code products only;

iii. for home building insurance only; and if so, iv. to what amount.

The Code, ASIC RG 165 and FOS Terms of Reference should be amended to increase the compensation cap for all Code products to $500,000, the same amount that FOS currently accept claims up to. 12. Issue 12 – Code Monitoring and Investigation The Issues Paper seeks to clarify the roles of the CCC and FOS in Code monitoring and investigation particularly given the now current confusing interrelated roles of the two organisations. The Reviews asks for submissions on whether the Code monitoring and investigation standards, and to the extent applicable, the FOS Terms of Reference, should:

(a) be promoted better by Code Participants, the CCC and FOS;

We submit that the Code Participants, the CCC and FOS should take active measures to better promote the Code monitoring and investigation standards particularly the CCC’s role under these standards to investigate breaches. It is our view that Code breaches are underreported because many customers do not know who or where to refer breaches to. Often this is because of a lack of awareness of the Code where conduct such as Code Participants failing to respond to routine requests for information and failing to provide progress updates on claims etc are not couched as Code breaches. If these situations were to occur, customers will generally contact Code Participants and although there are clear breaches, these issues will be swept under the rug by Code Participant’s employees and service providers or not be taken any further by customers for fear that it will impact negatively on a claim currently in progress. We recommend that there should be a clear path to complain with a dedicated postal address and email address. A dedicated website separate from the Financial Ombudsman Service website for lodgement of Code breaches would also assist in this regard.

(b) be amended to provide that the CCC should be able to give guidance or direction to FOS about its arrangements and processes for Code monitoring and investigation;

We agree with this approach. See also our comments in issue 9(d) below.

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(c) be amended to provide that the CCC not FOS should report to ASIC on serious misconduct and systemic breaches;

Consumer advocates do not agree with this approach. The current arrangement is that the FOS, through its terms of reference, must report to ASIC on serious and systemic breaches. This is separate to any code arrangements. We submit that the current arrangement should remain. FOS should be the body that ultimately reports to ASIC on serious misconduct and systemic breaches as it would have the benefit of seeing how these issues have impacted on consumers in the context of its dispute resolution role. Therefore the CCC should continue to report serious and systemic breaches it uncovers to FOS for FOS to add to its report to ASIC.

(d) be amended to provide that the CCC carry out all investigations into allegations of code breaches or non-compliance;

We submit that the CCC must carry out all investigations into allegations of Code breaches or non-compliance. The roles of FOS in dispute resolution and reporting to ASIC and the CCC in investigating all allegations of code breaches or non compliance should be clearly defined. Where FOS has identified potential code breaches or non compliance, it should refer those issues to the CCC for a more thorough investigation. In our experience where Code breaches are referred to the CCC and a formal dispute is lodged with FOS, the CCC have typically responded by saying that while there is a dispute in progress they are unable to continue with any investigation of Code breaches. Also, where the FOS systemic issues team is looking at a matter that may involve Code issues, the CCC will similarly put on hold their investigations of code breaches. These investigations could take an indefinite time to resolve meaning that the CCC could indefinitely be putting on hold their investigations of Code breaches. It is clear that currently, the various divisions of FOS and the CCC are too intertwined. A more flexible approach should be adopted for these situations and the CCC and FOS should work together to develop this approach. The CCC should be able to commence/continue their investigations separate from the influence of FOS whether that be the dispute resolution, systemic issues or any other team in FOS.

(e) be amended to provide that FOS or CCC reports should name a Code Participant who is under investigation for Code breaches or non-compliance;

This is the area where the current arrangements are woefully inadequate. The CCC would only receive identifying information (identify of the insurer) of non compliance if the insurer failed to rectify the non compliance. In other words, an insurer may be involved in significant non compliance, but the CCC will not know who the insurer is.

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Given the above, we believe that the CCC should be

1. Appropriately resourced; 2. Given full details about all reported Code breaches, including the identity of the Code

Participant, the status of any investigation pending and outcome of any completed investigation to improve their analysis of issues and outcomes (recommendation 43 of the NDIR Report); and

3. Have the power to publicly name a Code Participant who is found to have engaged in Code breaches or non compliance. We do not believe it is helpful to name a Code Participant who is only under investigation but is later found to have not breached any Code provisions or not engaged in non compliance, for procedural fairness reasons.

(f) best structure and coordinate the roles of FOS, the CCC and ASIC.

Consistent with our views above, we believe that the Code provisions and the FOS Terms of reference should detail standards for structuring and coordinating the distinct roles of FOS, the CCC and ASIC. We would be happy to engage in any further consultations in relation to the wording of such Code provisions. 13. Issue 13 – Code Enforcement and Sanctions The Issues Papers seeks to address the need to improve Code enforcement and sanction measures. The Reviews asks for submissions on whether the Code enforcement and sanctions standards, and to the extent applicable, the FOS terms of reference, the Deed of Adoption and the CCC Charter, should:

(a) be promoted better by Code Participants and FOS; We agree that better promotion of the Code enforcement and sanctions standards are required in order to improve consumer confidence in the effectiveness of the code and the general insurance industry as a whole.

(b) include sanctions from ASIC RG 183 – see paragraphs 10.154-10.1555; Currently the Code sanctions include:

1. Rectification steps; 2. Compliance audit. 3. Corrective advertising; and 4. Publication of the Code Participants’ non compliance. Refer to our comments in issue

12(e) above.

The Code should also make it clear that the compliance audit power of the CCC should enable it to audit and request information about Code issues from Code Participants.

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We submit that the following additional remedies and sanctions in RG 183 from paragraph 183.67 should also be adopted:

1. Compensation for any direct financial loss or damage caused to an individual by the breach of the Code;

2. Public naming of the non-complying organisations; 3. Fines and Penalties (see Section 4 above in relation to a proposed Penalty Regime);

and 4. Suspension or expulsion from industry associations for serious or systemic breaches

or non compliance.

(c) be amended in accordance with the matters set out in paragraph 10.159 As was recommended in the HOR Report, we believe that the following additional enforcement and sanctions should be adopted:

1. Breaches of the utmost good faith duty as it appears in the Code should be a breach of the IC Act; and

2. Publication of the name of a Code Participant that has breached the Code. The Code and the FOS Terms of Reference should also be amended to provide the CCC with a clear right to obtain information (with all details) from FOS (all departments) about any identified Code issues. 14. Issue 14 – Financial Hardship The Issues Paper seeks to address the current lack of adequate standards and guidelines dealing with financial hardship issues in relation to customers and third parties. The Reviews asks for submissions on whether:

(a) the use of Centrepay as an option for payments should be a Code standard – see Appendix G, paragraph 14.2;

We strongly believe that Centrepay as an option for the payment of premiums should be a Code standard. It is encouraging that insurers are starting to focus on financial hardship as it is an issue that has affected and will continue to affect their customers’ access to and experience with insurance. To this end we note that the issue of Centrepay payment of premiums was raised in ILS’s submission and the Brotherhood of St Laurence’s submission during the 2009 review of the Code. This issue was also raised in the consumer movement’s February 2011 recommendations in “A Fair Go in Insurance” campaign. It is now 2012 and insurers are still talking about this. It is time to overcome any practical difficulties and focus on how Centrepay payment of premiums can be successfully implemented.

(b) the Code should contain guidelines for dealing with hardship cases, particularly on premium payment, excess and debt collection;

We believe that the Code should contain guidelines for dealing with financial hardship cases. In particular we would recommend that the guidelines cover the following issues:

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Premium payment In relation to the issue of tackling customer difficulties in paying premiums due to financial hardship, new innovative ways for dealing with this problem using the example of other industries such as the utility industries may help. For example, one way is to allow direct debit instalment arrangements to match with the consumer pay cycle (e.g. fortnightly). Additionally, Centrepay should be included in the Code as an option for the payment of premiums. Refer to the publication “Reducing the risks: Improving access to home contents and vehicle insurance for low-income Australians” authored by Dominic Collins of the Brotherhood of St Laurence in 2011. In this publication, researchers surveyed a sample of 100 low income Australians receiving income support (amongst other stakeholder groups). Among the key points at page 7 of that publication were the following

“Payment issues including timing and method are another barrier to adequate insurance cover. Allowing regular payments under $10, and especially fortnightly payments, without increasing the annual total, would make insurance premiums easier to manage within tight finances. Study participants showed considerable interest in being able to use Centrepay, Centrelink’s direct-debit facility, to pay insurance premiums. The possibility of paying for home contents insurance together with rent also had widespread support.”

Payment of excess Clients who can’t pay their excess upfront should be provided with an option to pay the excess in affordable instalments or where relevant, have the excess deducted from the payout of the claim. We note that since the last Code review, the case of Calliden Insurance Limited v Chrisholm [2009] NSWCA 398 was released in November 2009 confirming that a failure to pay the excess upfront should not be a bar to claiming under an insurance policy. FOS Circular 3 was subsequently released adopting this view. In relation to FOS Circular 3 we note that FOS’s position on instances where an uninsured person is trying to claim against an insurance company for an amount up to $3000, and the insured person cannot pay their excess due to financial hardship, that FOS’s position is that the uninsured person should try to convince the insured person to talk to their insurer about payment of the excess in instalments. We submit that the more appropriate position is that once the uninsured party claims against the insurer and the insurer knows that the reason their insured is not claiming (by asking their insured directly) is because they can’t pay the excess in one go, then the insurer should inform their insured of the availability of the option to pay the excess in instalments. The Code should be amended to reflect this more appropriate position and to allow access to EDR for the uninsured person in this case.

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Refer to our case studies at pages 16 – 20 of the ILS submission to the 2009 Code Review. This issue was not addressed in the October 2009 review report that followed the Review. More recent case studies (2012) can be seen below. Case Study Source: ILS telephone advice Issue: Insured can’t pay excess Ms N has comprehensive car insurance. She was in a car accident. Her insurance company says she is at fault and has to pay an excess of $2400. Ms N cannot afford the excess. ILS advised Ms N to tell her insurer about FOS circular 3 and asked her to make an arrangement with her insurer to pay the excess in instalments. Ms N eventually called back to say that her insurer still insists that they won’t start the repairs to her car until she has paid her excess in full. Ms S needed her car for work and was getting very desperate from the numerous calls she made to our service. We advised Ms S to lodge a dispute in FOS. This caller had called between July to October 2012. It is clear that her insurer is not aware of the FOS circular released back in July 2010 and arguably not familiar with the court case in 2009 on this issue. Case Study Source: ILS telephone advice Issue: Insured can’t pay excess In November 2012, Ms M called ILS to advise us that her car was damaged in a hit and run. Her insurer had conducted repairs to her car but before they can release the car to her, they wanted the excess to be paid in full. Ms S needs her car for work. She can’t afford to pay the $600 excess. Her insurer had not discussed with her the option of paying the excess in instalments. Instead she was prevented from having access to her car, which had already been repaired and is waiting at the insurer’s repairer’s car yard for collection. Case Study Source: ILS telephone advice Issue: Insured can’t pay excess On 14 November 2012, Mr T contacted the ILS for assistance. He was 18 and had recently had a motor vehicle accident. He had insurance but his insurer demanded an excess payment of $2050. Mr T could not pay his excess as he was only a student. Mr T’s insurer insisted that they must charge him the excess unless the other party’s insurer agrees that their insured was at fault. Whether or not Mr T was entitled to a refund of his excess because he wasn’t at fault was irrelevant at this stage as Mr T’s insurer did not inform him about the fact that he can choose to pay the excess in instalments.

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Case Study Source: ILS telephone advice Issue: Other party can’t pay their excess Mr S was involved in a motor vehicle accident with a p-plater. Mr S was uninsured. The P-plater was insured but could not pay his excess. Mr S was advised by the P-plater’s insurer that until the P-Plater paid his excess, they can’t get involved. If the reason why the P-Plater could not pay his excess was because he was in financial hardship, then we submit that the P-plater’s insurer should have informed him that he could pay the excess in instalments. Case Study Source: ILS telephone advice Issue: Other party can’t pay their excess Mr W was involved in a motor vehicle accident. The other party was at fault and had made a claim with her insurer. However she could not pay the excess. The other party’s insurer said they could not pay him money for the damage to his car, until their insured had paid her excess. If the reason why the other party could not pay her excess was because she was in financial hardship, then we submit that her insurer should have informed her that she can choose to pay the excess in instalments. Debt collection (see also issue 18.2) We submit that the Code sections dealing with financial hardship should be overhauled and the following changes implemented: In relation to third party debt recovery, the Code should arrange for time to make payment in full and allow debtors to make an arrangement to repay the amount owing in affordable instalments. We note that the wording of the available options under section 3.12, although adopted from the then section 66 of the Consumer Credit Code with good intentions, does not make sense when applied to insurance third party recovery debts. The current wording would only make sense in the context of repayments of a loan to a creditor.

The phrase “if he or she cooperates with us” should be removed from clause 3.12 of the Code. This clause has the potential to prejudice third parties, as it gives a discretion to insurers not to negotiate where they deem a person to be uncooperative. In our experience, we have encountered clear examples of situations in which an insurer has erroneously claimed a lack of communication on the part of a third party debtor.

The phrase “illness, unemployment or other reasonable clause under section 3.12 should be removed and replaced with “circumstances of disadvantage” which should be defined to include:

a) Illness b) Unemployment

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c) Low income d) Disability e) Homelessness f) Mental health including psychiatric health g) Language and literacy problems h) Any other reasonable cause

The Code should provide for the permanent release (waiver) of a debt as an additional option to those already listed under clause 3.12 where there is a demonstrated long term financial hardship and inability to pay due to low income. Very often, our clients suffer extreme disadvantage, have no significant assets and are unlikely to ever have the capacity to repay the debt. Victorian debtors may be “judgment proof” under the Judgment Debt Recovery Act 1984 (Vic). In some cases, demands for payment are futile and a waiver of the debt is the only prudent way to resolve the matter. We note as this issue was first raised in the ILS Submission to the 2009 Code review, insurers even then were already releasing debtors from such debts. What is required is the implementation of a standard process that will be adopted uniformly by all insurers rather than simply relying on the arbitrary discretion of insurers. Additionally, a persistent problem arising from our casework was the failure of insurers to explicitly confirm in writing that third party debts had been waived. We have come across numerous examples of community legal centre lawyers being forced to make multiple unnecessary follow up telephone calls and emails in an attempt to confirm the status of these debts. A common response to these inquiries has been information communication that the file has been “closed.” The implications of this are uncertain and in this scenario, the status of the debt is unclear, as an insurer’s decision to close a file does not necessary equate to an unequivocal release from the debt. In order to prove closure to all parties, we submit that insurers should be required to provide clear written confirmation where an agreement has been reached in respect of the third party debt.

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At present, section 3.13 provides that an insurer will provide information to a third party about their complaints handling procedures and the existence of the Australian Financial Counsellors and Credit Reform Association (now Financial Counselling Australia – “FCA”) only where an agreement cannot be reached concerning the debt. We submit that the third party should be provided with this information in all cases where the financial hardship provisions of section 3.12 apply, regardless of whether an agreement can be reached. Additionally, section 3.13 should also compel insurers to provide information about the existence of the National Association of Community Legal Centres and State Legal Aid organisations.

Recommendation Clause 3.12 should be amended to read:

If a person is experiencing difficulty repaying a debt due to Circumstances of Disadvantage, we will work with that person and consider the following options:

a) extending the due date for the payment of the debt; b) payment of the debt in affordable instalments; c) payment of the debt in a reduced lump sum amount; d) a combination of (b) & (c); e) where (b) is among the options chosen, that person may ask us to postpone an

instalment payment for an agreed period; or f) permanently releasing the debtor from the debt claimed.

Confirmation of any such agreement will be provided to that person in writing.

The definition section should be amended to read:

“Circumstances of Disadvantage” means any of the following circumstances: (a) illness (b) unemployment (c) disability (physical and/or mental including psychiatric problems); (d) homelessness (e) low income; or (f) any other reasonable cause.

An insurer will reasonably consider releasing a debtor from a debt when:

• The debtor’s sole source of income is Centrelink or he or she has no income • The debtor is likely to remain on Centrelink as their sole source of income for the

foreseeable future • The debtor has no significant assets

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In addition to the above, transparent processes for applying for financial hardship should be developed including:

1. Insurer IDR contact details and financial hardship information included on debt recovery letters;

2. Confirming repayment arrangements in writing; 3. Requirement to respond in writing to financial hardship applications with reasons and

allow access to EDR. 4. Access to EDR to resolve purely financial hardship matters.

Refer to the case studies in the ILS submission to the 2009 Code review at pages 27 – 30 on the issue of the need for a process for releasing the debtor from the debt where there is a demonstrated long term financial hardship and inability to pay due to low income. More recent case studies can be found below. Case Study Source: ILS casework Mrs R received two letters of demand from two different insurance companies for $6257.30 and $1681.60 in relation to a motor vehicle accident during October 2011. Mrs R was 79 years old, on the age pension and suffered from debilitating medical conditions – heart failure and a cardiac arrhythmia following emergency surgery for a ruptured appendix, bowel perforation during a colonoscopy, lung cancer that required surgery and later a reversal ileostomy surgery. Mrs R’s only source of income was the age pension which she struggled with even to help her manage her very high medical expenses many of which were not met by Medicare. Neither Mrs R’s financial position nor her health were likely to improve. ILS requested that both insurers release Mrs R from the alleged debts. The first insurer agreed to release the debt and their procedure for releasing the debt was

Recommendation Clause 3.13 should be amended to read:

We and our representatives will provide information to a person referred to in clause 3.12 about:

(a) our complaints handling procedures; and (b) the existence of Financial Counselling Australia

(www.financialcounsellingaustralia.org.au) and the phone number for referral to a financial counsellor (Australia-wide) being 1800 007 007 for a referral to a not for profit, free financial counselling service; and

(c) the existence of the National Association for Community Legal Centres and the State Legal Aid agencies for legal advice.

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quite straightforward, responding after our written request for a release. The other insurer did not initially agree to release the debt. In their letter to the client refusing her request for a waiver, they did not provide any reasons. They also failed to tell Mrs R about their complaints handling procedures and the existence of AFCCRA (FCA) as required by the Code. After we complained to the FOS Code Compliance Committee in relation to the Code breaches and a further letter confirming our client’s financial hardship from our in-house financial counsellor, the second insurer eventually agreed to waive the debt. Case Study Source: ILS casework Mr X is currently being pursued for $722.81 by an insurance company for allegedly being at fault in a car accident. Mr X is in serious financial hardship and wishes to be released from the debt. Mr X’s only source of income are Centrelink payments comprising Newstart payments of $443.55 a fortnight and family tax benefits of $130 a fortnight. He supports his wife who is 7 months pregnant and not eligible for Centrelink benefits, and his 2 year old child. Mr X came to Australia on a humanitarian protection visa about two years ago. He was victimised and assaulted. He is still undergoing counselling and treatment and is being assessed for post-traumatic stress disorder. Mr X has no significant assets. He sold his car for $1200 as he could no longer afford petrol or to maintain the car. All the proceeds were repaid to friends who had lent him money. Mr X and his wife rent privately. The insurer agreed to waive the debt based on Mr X’s severe financial and personal hardship. Case Study Source: Sunshine Youth Legal Centre Ms A was involved in a motor vehicle accident in which she accepted liability. The insurer for the other party sent her a letter of demand for $1680. Ms A was in financial hardship and was unable to pay the debt being claimed. Ms A has significant social problems likely to affect her financial position for the foreseeable future. She was unemployed with no income, she was unable to complete her apprenticeship and therefore had no formal level of education beyond year 10 which made her future employment opportunities slim. Additionally, at the time of the accident, she was homeless and had been for the 3 years prior.

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The insurer agreed to waive the debt based on Ms A’s severe financial and personal hardship. Case Study Source: Wyndham Legal Service Inc. Ms C was involved in a motor vehicle accident. The insurer for the other party sent her a letter of demand. Ms C was in financial hardship and was unable to pay the debt being claimed. Ms C was receiving a Centrelink sole parenting payment and was a single mother of 7 children all of whom were under the age of 18. The insurer agreed to waive the debt based on Ms C’s severe financial and personal hardship. Case Study Source: Wyndham Legal Service Inc. Ms D was involved in a motor vehicle accident. The insurer for the other party sent her a letter of demand. Ms D was in financial hardship and was unable to pay the debt being claimed. Ms D was receiving a sole parenting payment, pharmaceutical allowance, family tax benefits, pension basic supplement and large family supplement from Centrelink. Ms D was in receipt of these payments as she was providing for 11 children all aged between 3-18 years old. The insurer agreed to waive the debt based on Ms D’s severe financial and personal hardship. Waiver of fees in cases of financial hardship for Code Participants providing information and documents The case study below highlights the need for Code guidelines in relation to this issue. Case Study Source: ILS casework Mr Y arrived in Australia as a refugee by boat. He was unemployed and on Newstart (Centrelink). He has a wife and 3 kids. He needs his car to support his family. English is his second language and he does not speak it well. He had made a claim after a car accident but his claim was rejected on the grounds that he had failed to disclose his license suspension. When the ILS assisted Mr Y to request further

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information and documents relied on to reject Mr Y’s claim, the insurer responded by referring us to a document that included the following amongst it’s paragraphs: “An access charge may apply An access charge may apply, but not to the request itself. The charge is for the time we spend on locating, collating and explaining the information you request (generally based on a rate of $60 per hour or part thereof) plus any photocopying costs and out of pocket expenses (such as freight and travelling costs).”

(c) If so, whether the guidelines should cover the criteria for hardship and the available outcomes.

The guidelines should cover the criteria for hardship and the available outcomes. The criteria for financial hardship should remain at illness, unemployment or other reasonable cause. The available outcomes under the current Code should be expanded to include those mentioned in (b) above. 15. Issue 15 – Natural Disasters The Issues Paper seeks to address issues about whether the Code standards needs to be varied in the event of a natural disaster or catastrophe, definitions for these terms and the ICA Disaster Declaration Guidelines criteria. The Reviews invites submissions about whether:

(a) the Code should be able to be varied by the ICA in an extraordinary catastrophe or disaster;

We submit that the Code should not be able to be varied in an extraordinary catastrophe or disaster. The time lines for decisions on claims are generous enough to accommodate high claim numbers from disasters. and when coupled with the exceptional circumstances exemption (however defined) mean that there is enough flexibility to accommodate natural disasters. By way of a compromise, the Code should set tightly define the exceptional circumstances in which the Code commitments will be varied and set out specific claims and complaints

Recommendation The Code should include a section enabling the waiver of fees in cases of financial hardship for Code Participants providing information and documents.

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handling standards for catastrophes or disasters to allow customers and all involved to know what to expect in such cases. We believe this is consistent with the HOR Report’s findings that insurers should clarify the benchmarks they intend to adhere to in a natural disaster as stated in the Issues Paper. It is also consistent with the July 2012 changes to the Code implementing recommendations of the HOR and NDIR Report (as stated in the Issues Paper) requiring the removal of what were previously sections 4.3 and 4.4 which operated to allow insurers to vary or excuse compliance with Code standards in cases of a catastrophe or disaster. As also stated in the Issues Paper, the Commonwealth Government supported these changes in its 14 November 2011 response.

(b) the definition of catastrophe or disaster is appropriate and sufficiently specific; Our view is that any definition should always remain specific to avoid abuse by Code Participants to the detriment of customers.

(c) the criteria in the ICA Disaster Declaration Guidelines are appropriate and sufficiently specific;

We consider that exceptional circumstances as defined in the Guidelines must be more tightly defined with a procedure to be set out in those circumstances and guidance on when a complaint arises.

(d) the consequences – see paragraph 2.8 and Appendix B – are appropriate. We strongly advocate that insurers must still be required to notify customers about the availability of IDR and EDR. This requirement should not be removed simply because there is a catastrophe or disaster. Arguably it is even more important. The Review also asks for submissions on whether the Code should:

(a) be amended in relation to the matters in paragraph 10.173; We agree that the Code should be amended to require that

1. The ICA should review its procedures and plan for effective contingency measures in times of disaster events;

2. Insurers should clarify the benchmarks they intend to adhere to in a natural disaster; and

3. A business plan should include adequate response procedures for natural disasters.

(b) require Code Participants to have a natural disaster response plan which complies with minimum standards;

We agree that the Code should be amended to require a natural disaster response plan that is published and publicly available.

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16. Issue 16 – Code Governance The Issues Paper seeks to clarify the roles of the ICA, ASIC, FOS and CCC in so far as they are relevant to the governing of the Code. The Review also asks for submissions on whether Code governance and the roles of the ICA, ASIC, FOS and the CCC should:

(a) be promoted better by Code Participants, the CCC and FOS; We agree with this view.

(b) best structure and coordinate the roles of FOS, the CCC and ASIC; Consistent with our views above on the roles of FOS, the CCC and ASIC on code monitoring and investigations, we also agree with this view.

(c) reflect the issues raised in paragraphs 10.149, 10.162 and 10.174; Code governance and the roles of the ICA, ASIC, FOS and the CCC should reflect our views on Issue 11 on code monitoring and investigations (as raised in paragraph 10.149 of the Issues Paper), Issue 13 on enforcement and sanctions (as raised in paragraph 10.162 of the Issues Paper) and Issue 15 on natural disasters above (as raised in paragraph 10.174 of the Issues Paper).

(d) be amended in the Code and related constitution documents to implement the matters in paragraphs 10.181 and 10.182.

The Code and related documents should be amended to implement the following:

1. Appointments to the CCC should be conducted in the same fashion as FOS Panels; 2. The role of the CCC should be to closely monitor compliance of the Code by

insurers, investigate breaches where appropriate and publicly publish breaches and outcomes, identifying all relevant insurers;

3. The CCC should adopt a principle of transparency; 4. The CCC should publish data (quarterly) on coverage for main natural disaster risks

including flood, bushfire and cyclones; 5. The CCC should publish claims handling and complaints reporting per insurer, per

industry on a quarterly, annual basis. These should be up to date. These reports should include cases of natural disasters or catastrophes where relevant for that reporting period and should cover:

a. Claims rejected; b. Claims withdrawn; c. Complaints to IDR; and d. Complaints to EDR.

We believe that the Code should also provide for a review of the Code by ASIC to assess effectiveness as was stated in recommendation 43 of the NDIR Report.

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17. Issue 17 – General Issues 17.1 Charters and Opt Out The Issues Paper states that “there may be some benefit in considering whether the adoption of a customer charter, which embodies certain minimum standards, might entitle Code Participants to opt out of some parts of the Code, for example, claims handling. We believe that the Code should apply uniformly to all Code Participants. Charters are additional obligations. If a Code Participant has a Charter, then it should not be inconsistent with the Code particularly where the Charter purports to do less than that required by the Code. 17.2 Code and Industry Development – Continuous Improvement The Issues Paper suggests that there may be some benefit in considering a mechanism, process and forum to bring all stakeholders together to consider the changing context of their relationships and future needs for example when a crisis emerges. We are generally supportive of such a forum for discussing the changing nature of the industry and how that impacts on the development of the Code as and when crises occur should they occur outside of the 3 year review period of the Code. 17.3 Legal Aid The Review asks for submissions about the NDIR recommendations for increasing funding for legal advice and assistance with insurance disputes following natural disasters. The NDIR recommends that Commonwealth and State Governments provide funding for legal advice and assistance with insurance disputes following natural disasters. We agree with this recommendation. We also submit that the wide range of topics canvassed in this submission reveal that advice for consumers in relation to both insurance claims disputes and debts to insurance companies transcends natural disasters and is an ever present need in modern Australian society. We note that Recommendation 9.6 of the Productivity Commission Review of Australia’s Consumer Policy Framework released in 2008 was that Australian Governments should provide enhanced support for individual consumer advocacy through increased resourcing of legal aid and financial counselling services, especially for vulnerable and disadvantaged consumers. While there has been increased support for financial counselling services since that time, there are still many States and Territories in which there is little, if any, access to independent consumer legal advice and assistance at all.

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The Insurance Law Service (“ILS”) began as a small pilot in 2007 at Consumer Credit Legal Centre (NSW). Available nationally but with funds for only one solicitor, the service took 693 calls for advice and opened 68 casework files in 2007. In the last financial year, now with 3 solicitor positions, the service took 3,632 calls and opened 75 cases (118 casework files were finalised in the same period). There are many people who still complain they cannot get through to the service and a portion of the funding for the 2012-2013 financial year has been provided on a one-off basis only. Funding is currently provided by the Commonwealth Attorney General’s Department and Legal Aid NSW.

The House of Representatives Inquiry Report Standing Committee on Social Policy and Legal Affairs report, In the Wake of Disasters, produced following an inquiry into the insurance industry's response to the extreme weather events around Australia in 2010/2011 included at Recommendation 10:

“The Committee recommends that the Australian Government and relevant State and territory governments jointly allocate additional and continuing funding in the 2012–13 budget to the Insurance Law Service for the mobilisation of a temporary physical presence in areas of need following natural disasters.

The service should be available to all persons in an affected disaster area and not subject to means-testing.”

The ILS is in a unique position in collecting and disseminating information about the consumer experience of insurance across the country. A national, telephone-based model is an efficient manner of delivering insurance law services, because it provides the flexibility to respond to insurance problems that arise from natural disasters anywhere in Australia. It also provides a small core of specialist expertise that can help to provide immediate professional development and support to local legal services, which are likely to lack specialist expertise, in the event of a disaster. However, it needs more substantial and stable funding and cannot replace local services on a scale like that which was required in the aftermath of the Queensland and Victorian floods of early 2011. Importantly we note the importance of consumer advocacy services being provided on a completely independent basis. Direct industry funding of such services should not replace proper government funding of consumer advocacy. However, there is capacity for industry to contribute to the resources required to provide these services by establishing a trust fund with appropriate independent governance and accountability. A small contribution per policy upon renewal, for example, could make a significant difference to the resources available for consumer advice.

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18. Other issues not canvassed by the Issues Paper 18.1 Other Recommendations of recent Reports The following further recommendations of the NDIR Report should be implemented by the Code:

1. Making flood risk information available (Recommendation 23) 2. Replacement value cover (Recommendation 32) 3. IDR processes are separate to claims handling (Recommendation 42) 4. Fairness test in claims and complaints handling (Recommendation 42)

The following further recommendation of the AFIC report should be implemented by the Code: Minimum standards for claims handling as set out in recommendation 5 18.2 Debt Collection Between 30-40% of calls to the ILS are not from insurance customers with claims disputes, but instead from people being pursued for debts by insurance companies, most commonly as a result of a motor vehicle accident. The majority of calls to the ILS in relation to third party motor vehicle recoveries raise issues that require addressing by the Code. These issues are experienced by clients of other consumer advocacy services and financial counsellors as well.

1. Often third party motor vehicle debts are sold to debt collection agencies or assigned to other agents including debt collection lawyers. The Code does not presently make it clear that the Code applies even if the debt is sold and that all agents (including debt collectors and debt collection lawyers) are bound to comply with the Code in relation to providing financial hardship assistance under sections 3.11 – 3.13 as an alternative to threatening legal action.

Recommendation There should be improved funding for consumer advocacy, including insurance advice and assistance, across Australia via Community Legal Centres and Legal Aid services. The Insurance Law Service should be adequately funded to provide a national advice service, including related casework, consumer education and input into national policy development on an ongoing basis. The ICA should also explore the possibility of contributing to the funding of consumer advice and assistance services in ways which do not compromise the independence of those services.

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2. Correspondence (including letters of demand and telephone calls) from insurers, debt collectors, debt collection lawyers, insurance company lawyers all lack transparency.

a. Letters of demand failing to clearly identify who the insurer initiating the debt recovery action is (discussed above at issue 1);

b. Letters of demand for example, fail to inform the third party that they have rights under sections 3.11 – 3.13 of the Code including the right to seek financial hardship assistance and information on where to seek independent legal advice. Refer to our comments and recommendations at issue 14(b) above on financial hardship in relation to debt collection.

c. Letters of demand also fail to provide details of the claim, including providing a repair quote/invoice (in some cases), the date and time of the accident and the parties that are involved (in most cases). This assumes that at any point in time this is the only potential incident in which a person may have been involved, an often incorrect assumption (See case study below).

3. In our experience, many debt collectors are also averse to responding in writing such as confirming outcomes of any settlements in writing.

4. Insurers and their agents and assignees wishing to enforce a debt should give alleged debtors reasonable access to information on which they have relied in establishing liability and an itemised account of damage and repairs completed/anticipated.

5. A simple process to verify debts in bankruptcy – a debt arising from a motor vehicle accident is usually a claim in tort. Such debts are not provable in bankruptcy until they are liquidated. Financial counsellors are currently advised that they should not assist a client to apply for bankruptcy until their client has admitted to the debt in writing, including the amount owed, and this has been acknowledged by the party claiming the debt (or their legal representatives). A simple set of sample letters which would satisfy these requirements could greatly improve the efficiency of this process, saving time and resources for both consumer advocates and insurers in circumstances where the costs involved will never be recovered.

Case Study Source: CCLC Staff Member A woman received a letter of demand addressed to her mother in relation to a recent car accident. As her mother had recently suffered a brain injury, and the woman was aware of an accident in which her mother had been at fault, she made arrangements to pay the claim on her mother’s behalf. A short time later she received another demand which was ultimately revealed to relate to the accident she thought she had already paid for. It transpired that the first claim related to an altogether different incident about which liability was not clear!

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18.3 Fraud investigations/investigations generally The Code does not currently contain any specific standards for the conduct of claims investigations other than the general standards that employees and service providers will conduct their services in an honest, efficient, fair and transparent manner (section 3.7.1) and that claims handling will be conducted in a fair, transparent and timely manner (section 3.5.1). In our experience customers have reported that they have had to attend many lengthy and often multiple claims investigation interviews. Customers also report the intimidating conduct

Recommendation We believe that in relation to debt collection practices the Code should address the following:

1. The Code should continue to apply even if a debt is sold. The insurer must specify this in the terms of any assignment.

2. All agents (including debt collectors and debt collection lawyers) should be bound to comply with the Code in debt collection.

3. Letters of demand should be transparent and include the following: a. a copy of the repair quote or itemised completed repairs; b. identify the insurance company for whom the debt collectors, lawyers or

other agents are acting for; c. refer to the Code particularly on financial hardship (third party recoveries);

and d. basic details of the claim e.g. date, time of accident, parties involved and

indicate that there is a process for dealing with financial hardship. 4. Requirement to respond in writing to disputes and hardship requests including

confirmation of outcomes in writing in third party recovery of debt matters. 5. Compliance with the ACCC and ASIC Debt Collection Guidelines should be

retained. 6. A simple process to verify debts in bankruptcy.

In relation to third party recoveries, we recommend that dispute resolution should be accessible to third parties including:

1. Access for third parties to IDR for disputes where liability and the amount claimed is disputed.

2. Third parties should be informed about and provided with access to IDR for financial hardship.

3. Requirements to: a. Provide a detailed breakdown of the damage that has been repaired so

that the third party can assess the reasonableness of the claim and the extent of the damage for which they accept liability, if any;

b. Provide third parties with witness statements, photographs and other relevant evidence relied on in making an assessment of liability.

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of interviewers who are often private investigators or former police officers. One elderly caller to ILS reported crying during the interview and we have had many reports of customers feeling as though they were being treated as if they were a criminal. Most if not all interviews were being conducted in a customer’s home where they feel trapped as they can’t leave their own homes. Some even report that interviewers walk around their homes and take photos of no obvious relevance to the claim. The experience of Non English Speaking Background customers is often also exacerbated by the aggressive conduct of insurance investigators. Customers report that they are not told what their rights are in relation to the conduct of the interviews, what to expect and certainly not about sections 3.7.1 or 3.5.1 about how claims handling is supposed to be conducted in an honest, fair and transparent manner. Some customers report that they were not provided with a copy of the transcript or recording of the interviews. A large number of calls to ILS complaining about the claims handling process often report that insurers are asking for excessive and what they consider irrelevant information. Often these customers also report that insurers are refusing to explain the relevance of information or documents requested even though section 3.5.2 of the Code requires that they must only take into account relevant information when deciding on a claim. This problem can also be exacerbated by insurer’s asking for the information in a piecemeal fashion over a period of many weeks – frustrating the consumer who thinks that each additional piece of information will be the last and dragging out the investigation process. Some customers may be under additional stress because the failure to pay the claim may be causing financial or other difficulties (where a person is dependent on a vehicle for work, for example, and it is no longer roadworthy). Customers who refuse to provide the requested information or documents become at risk of their insurers rejecting their claims due to a perceived lack of cooperation. Some have also had their policies cancelled as a result. From our collective experience claims investigators do not inform customers of the Code provisions in relation to sections 3.7.1, 3.5.1 and 3.5.2. Additionally, these provisions, do not address the specific conduct issues highlighted by the aggressive practices of claims investigators and the way claims investigations are conducted. At a minimum, there must be a limit on the duration and number of interviews, clients should be given a factsheet before the interviews about their rights and what to expect during the interview including:

1. Right to ask for a break if they need one. 2. Right to have someone there with them for moral support. 3. If a customer is on medication, the interviewer must tell the interviewee that they

should disclose this at the beginning of the interview. 4. Right to a copy of the interview transcript and a copy of the recording. 5. Interviewees should be encouraged and informed of their right to review a transcript

and correct mistakes instead of being forced to sign on the dotted line. Interviewees must be given the right to review the transcript at their own time and not sign at the interview.

6. Right to have the interview conducted somewhere neutral other than a customer’s home.

7. NESB customers should be offered the services of an interpreter.

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8. Right to be provided with a written list of information/documents requested from the insured with an explanation as to why each item is relevant to the claim to ease consumer concerns about irrelevance. The list of information should be exhaustive and further requests for information should only occur in exceptional circumstances.

9. The right of the customer set a time limit for the interview (e.g. 1 hour). If a time is set the investigator must leave at the conclusion of that time.

10. Right to terminate an interview after a certain time (e.g. 1 hour). 11. Right to refuse to be interviewed for a second time and any additional queries should

be in writing. 12. Right to refer the matter immediately to EDR if the customer is of the view that the

insurer’s actions are aggressive or causing unacceptable loss or delay. In our collective experience this problem is affecting a small percentage and yet a significant number of insurance customers. It is an area that the Code must address with great potential to improve the claims investigation experience of customers. The selected case studies below highlight the problems from the customer’s perspective. Case Studies Case Study Source: ILS telephone advice Mr G’s motorcycle was damaged when he fell down a hole while riding along a dirt track. He made a claim with his insurance company who have been asking him for more and more information and documents without telling him why they keep on needing more information and documents. They haven’t made a decision on his claim. He believes that he has cooperated and given them everything that they’ve ever asked for. Mr G has been to 2 interviews already. The first interview took 3.5 hours. He states that they were asking the same questions all the time, just worded differently each time. The second interview took 3 hours. His insurance company now want a third interview. They promise him that this will be the last interview. Case Study Source: ILS telephone advice Mr R’s house was burgled and he subsequently claimed on his home contents insurance policy. This theft was reported to the police and he was advised that a number of neighbouring properties were also burgled that night. Mr R advised that he and his wife attended an interview. Each took 2 hours. The investigator asked him for bank statements and phone records which he felt were really sensitive information. His insurer did not explain why they needed those documents and therefore he refused to give it to them. After 2 weeks, the insurer sent him a letter saying they’ve rejected his claim because of his lack of cooperation. They’ve now also cancelled his policy.

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Mr R feels as though he was treated like a criminal. He was the one that was burgled. He has since called FOS who told him to call his insurer’s IDR. His insurer’s IDR said that they would investigate the matter. In the meantime, he has no insurance, and his insurer’s IDR refuses to reinstate his policy and told him to get insurance elsewhere. Case Study Source: ILS telephone advice Mr M, a 70 year old man was involved in a motor vehicle accident which he admits was technically his fault as he was swerving to avoid hitting a bike and ended up hitting someone else’s car. He claimed with his insurer. He had to attend an interview that lasted for 4 hours. He was exhausted, stressed, cried and had to see a doctor for medication as the investigator was too aggressive in his questioning. During the interview he was constantly asked to remember details about the accident which he couldn’t quite remember. The investigator was also walking around his house and taking photos. The investigator was asking for what he considered to be irrelevant information such as details of his previous place of residence, details of who leased his previous residence, details of his home building claims history, mobile phone records but he had been using a prepaid phone. The investigator also asked for information about his family and their bank statements and phone records. He believes that those are irrelevant and felt that it was an attack on his family. This was all taking its toll on the elderly Mr M. He had become very frustrated that his insurer was dealing with the claim in this way and were treating him like he was a criminal. Case Study Source: ILS telephone advice Mr M’s car was stolen while parked at his girlfriend’s dad’s house. His insurer was investigating his claim. He has attended two interviews with investigators. The investigator interviewed Mr M’s girlfriend at Mr M’s house. The investigator interviewed Mr M at a McDonalds restaurant for about 4-5 hours. The interview was at MacDonald’s because the interview was supposed to be conducted at Mr M’s girlfriend’s dad’s house but Mr M did not have keys to enter that house and the investigator said that MacDonald’s would have a power outlet to plug his laptop. The second interview Mr M had with an investigator was at a conference room for 3.5 hours. During the first interview, Mr M reports consistently being asked very irrelevant questions to try to throw him and then the investigator would change tack suddenly. The investigator recorded parts of the conversations but then at other times would turn the recording device off. The investigator during the interview did inappropriate things also including telling Mr M how to run his business, and telling Mr M that he should use MYOB, and pulling up MYOB on his laptop to show Mr M how to use MYOB.

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During the second interview, the investigator persuaded Mr M that his finances didn't look very healthy and that it would look dodgy if he proceeded with the claim because his finances were bad and his girlfriend had just been diagnosed with cancer. Mr M told the investigator that he should sign a piece of paper saying that he didn't want to proceed with the insurance claim. Mr M ended up signing the piece of paper to say that he did not want to proceed with the claim. The investigator at the time also showed Mr M another piece of paper which stated that Mr M would have to pay $2,500 for the investigation costs. Mr M took this to mean that if he wished to proceed with the claim, and if the investigation were to continue, he would be required to pay $2500. The investigator told Mr M that it was up to his insurer’s discretion whether to charge Mr M the $2,500 or not. Mr M received a letter from the insurer about the second interview saying he could get legal advice if he wanted to, but he only received that letter after the second interview had already been conducted, so Mr M didn't think to speak to a lawyer first. Mr M was concerned that he could no longer claim as he had signed the piece of paper given to him by the investigator stating that he agreed to not proceed with the claim.

18.4 Uninsured Motorist Extension We note that many third party property policies offer uninsured motorist extension (“UME”) cover. This enables a person to make a claim with their insurer for the damage that an uninsured driver does to their motor vehicle even though their cover is only third party property (covering damage that that insured causes to a third party’s car).

Recommendation We believe that the Code standards and processes should be set for fraud investigations and investigations generally including in relation to:

1. Duration of interview, number of interviews and conduct of interviews, who can be present, place of interview, breaks etc.

2. Code Participants must only make reasonable requests for documents and information

3. Providing information on the process to the insured and their rights whether that be in the form of a factsheet or otherwise about the investigation process. This can form part of the documents discussed above about providing claimants with full information about what they can expect from the claims, complaints/IDR process and EDR process.

4. Clarifying that third parties have no compulsion to participate or provide information 5. Identifying people at a special disadvantage (e.g. NESB, mental illness) and

referring for support/advice.

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We are very supportive of this cover being provided but there are two key problems that seriously undermine the effectiveness of this type of cover. Firstly, many insureds who do not read their policy do not know that they have UME cover. Even when an insured calls to discuss the circumstances of their motor vehicle accident, insurers and their claims/customer service representatives do not regularly tell third party property insurance holders of the availability of the UME cover under their policy and about their right to make a claim under the UME section of their policy. The second major concern we have with this type of cover is that even when it’s available, and a claim is ultimately made under this cover, there is no clear procedure for claiming under this cover and the extent of the information required to prove the two main elements of the cover: that the other party is uninsured and that the other party is at fault. The two case studies (from our previous Code Review Submission) below illustrate these two main concerns. Case Study Source: Legal Aid NSW Ms V was involved in a motor vehicle accident in which the other driver was uninsured. The other driver admitted liability and was charged with negligent driving by the NSW Police. Ms V had third party property insurance on her motor vehicle. She was not aware that her policy had cover for UME. Despite this, she did still contact her insurer in respect of the accident but was told by the customer service/claims representative that as she only had third party property insurance, there was nothing the insurance company could do to help her. Ms V was provided with nothing in writing in respect of her claim. Crucially, she was not advised of the UME clause in her policy. Like almost every client Legal Aid has ever advised in relation to this issue, she was not aware that she could claim under her own policy for damage to her vehicle, which was approximately $2,500. Ms V came to Legal Aid after commencing a claim in the Local Court which had been of considerable expense and inconvenience to her. The uninsured driver had gone out of his way to avoid service, had threatened her in respect of commencing a claim (he lived around the corner from her) and had advised that even if she was successful, she would get nothing out of him as he had no assets. Legal Aid advised her to make a claim under the UME clause in her contract. Ms V followed this advice and the insurer paid out on the damage to her vehicle under the UME clause.

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Case Study B Source: ILS Mr L was involved in a car accident in which he and the other car’s driver suffered minor injuries. As there were injuries involved, the police agreed to visit the scene of the accident and provide a report. Mr L claimed under his uninsured third party property insurance cover. The relevant terms in his policy stated that:

We will cover your vehicle for loss or damage arising from an accident/event caused by the driver of an uninsured vehicle. You may only claim under this policy extension if: • You show to our satisfaction that the accident/event was the fault of the

uninsured driver and we agree; and

• You supply to us the make, type and registration number of the other vehicle and the correct name and address of that driver.

With the help of the police report, Mr L was able to provide the relevant identifying details of the third party’s car and prove to the insurer’s satisfaction that the accident was caused by the fault of the third party. However, the insurer denied Mr L’s claim on the grounds that he had not been able to show to their satisfaction that the third party was “uninsured.” They allege that they contacted the third party but were informed that the third party did have insurance. This rejection was despite the fact that L had taken all reasonable and genuine steps to discharge his obligations on the balance of probabilities in proving that the third party was uninsured. We are not aware of a state or national register recording those who have or do not have insurance on their vehicles that would cover them for the damage they do to someone else’s car/property. It is also clear that written communications to the third party by Mr L, by his previous solicitor firm and by the insurer themselves, have not been successful in obtaining a response from the third party. The steps taken by L included:

1. Telephoning the driver of the third party car to find out how to contact the third party car owner;

2. Telephoning the third party on numerous occasions; 3. Attending in person the third party’s residential home on numerous occasions when

telephoning proved unsuccessful; 4. Telephoning and on one occasion attending the insurer’s office address to convey

his discovery that the third party did not have insurance; 5. Attending the third party’s property to ask him for insurance details since he told L’s

insurer that he was insured. To which the third party replied that he was not insured; 6. Sending a letter of demand to the third party including a statement to the effect that if

he was insured, he should provide his insurance details to our client; 7. Contracting a private solicitor firm to send a letter of demand to the third party on L’s

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18.5 Repair workmanship and materials 20% of claims disputes brought to the attention of the ILS are about the extent of repairs required, the adequacy of repairs completed and poor workmanship. From our experience although section 3.14 exists in the Code to protect customers in case of poor workmanship by insurer’s selected and authorised repairers, the Code should also be amended to address the following situations as detailed in the two case studies below: Case Study Source: ILS telephone advice Mr B’s car was damaged as a result of a motor vehicle accident. His insurer accepted the claim and authorised a repairer to conduct the repairs.

Recommendation We believe that the Code should contain standards for Uninsured Motorist Extension Cover to require that Code Participant’s employees and service providers should

1. Clearly inform clients of the availability of this cover and if so, 2. Provide clear procedures on how they can to claim and what information is required 3. Not require insureds to take unreasonable steps or compromise their personal safety

in order to “prove” an element of their claim.

behalf when sending a letter himself proved unsuccessful. This letter of demand also contained a statement that if the third party was insured, he should contact his insurance company; and

8. Allowing us (the Insurance Law Service) to call the owner of the third party car, to confirm that he was not insured.

ILS made submissions on Mr L’s behalf to the Financial Ombudsman Service. A response to our submission from the insurer included the following nonsensical arguments:

1. The insurer was acting in good in providing UME policies anyway when they don’t really have to.

2. It was L’s fault that he did not choose comprehensive insurance.

3. L should just sue the third party for damage to his car in a tribunal instead of continuing to dispute this issue with the insurer.

Ultimately FOS gave a recommendation which was accepted by the insurer that was in our client’s favour agreeing that all reasonable steps had been taken to confirm that the third party was uninsured and that no further steps were required.

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Mr B had hire car cover under his policy but it was due to expire and as a result of the insurer’s authorised repairer’s dodgy repair works, his car will be out of service for an additional unknown period. His insurer refused to provide hire car over and above what the policy provides for even though they admit that they are by virtue of the Code, responsible for the poor workmanship of the repairer. Mr B needs a car to go to work. Case Study Source: ILS telephone advice Mr L’s house was damaged as a result of a fire that started in the laundry. His insurer accepted the claim and authorised a builder to conduct repairs to the building. However the house remains uninhabitable due to shoddy repair work. Mr B had been provided with temporary/emergency accommodation whilst his house was being fixed but as a result of the builder’s shoddy workmanship he will need to extend the time he needs alternative accommodation. His insurer refused to pay for additional accommodation expenses required as a result of the shoddy workmanship of their authorised builder.

Recommendation We believe that section 3.14 of the Code should include the following:

1. Where the insurer’s repairer has engaged in poor or faulty repair of a motor vehicle which has resulted in the insured requiring hire car expenses including additional hire car expenses over and above their current cover, the insurer agrees to pay or reimburse the insured for such expenses.

2. Where the insurer’s repairer has engaged in poor or faulty repair of a home building which has resulted in the insured requiring alternative accommodation including alternative accommodation over and above their current cover, the insurer agrees to pay or reimburse the insured for such expenses.