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General Insurance Code of Practice 2011-2012

 

The FOS Code Compliance and Monitoring Team has now published its General Insurance annual report, The General Insurance Code of Practice: Overview of the Year 2011/2012, which contains aggregated industry data and consolidated analysis on Code compliance. This article contains a snapshot of the annual report – the whole publication can be downloaded here.

 

Summary of FOS Code team’s code monitoring activities in 2011-2012

Overall, Code Participants demonstrated a maturing approach to Code compliance during the reporting year ending 30 June 2012. Their commitment to continuously improving their Code compliance frameworks was evident through various Code monitoring initiatives and an increase in the number of self-identified and reported Code breaches to the FOS Code Team.

During the reporting year the FOS Code team:

  • Identified 2 significant Code breaches affecting a combined total of 10,021 customers and resulting in payments of $5,287,370 (including interest) to affected customers.
  • Received a significant Code breach report affecting 6,380 customers, resulting in written notification to all customers about claims handling delays.
  • Conducted 58 desktop compliance reviews resulting in the identification and rectification of 18 Code breaches.
  • Conducted 126 investigations into alleged Code breaches resulting in the identification and rectification of 49 Code breaches.
  • Monitored Code Participants’ implementation of remedial actions in response to Code breaches.

In addition, during the reporting year Code Participants:

  • Self-reported and remedied 2,724 additional Code breaches.
  • Reported 7,722 instances where they were unable to meet the Code’s claims handling standards due to the impact of the Queensland 2010/2011 floods. As a result of these events, Code Participants implemented a number of initiatives to improve claims handling in times of natural disaster.

 

Summary of the Aggregated 2011-2012 industry data

Code Participants reported that during 2011-2012:

  • They employed 34,621 staff; engaged 5,856 corporate and 11,695 individual authorised representatives; and provided Code training to 18,273 employees and 12,761 individual authorised representatives.
  • They issued 34,180,075 personal insurance policies and 4,827,243 commercial insurance policies to customers.
  • Customers lodged 3,309,953 personal insurance claims and 556,031 commercial insurance claims.
  • Only 3% of all claims lodged were declined, consisting of 91,451 personal insurance claims and 5,667 commercial insurance claims.
  • Customers withdrew 117,674 personal insurance claims and 2,899 commercial insurance claims (120,573 in total).
  • Customers raised 27,240 personal insurance internal disputes and 1,635 commercial insurance internal disputes with Code Participants (28,875 disputes in total).
  • They finalised 28,400 disputes which resulted in 20,010 outcomes in favour of Code Participants (70%) and 8,390 outcomes in favour of customers (30%).

 

Overview of key industry data

A more detailed analysis of the key industry data for 2011-12 can be found in the report.  In summary:

Policies

Code Participants reported that the total number of general insurance policies issued had increased to 39,007,318 – an increase of 2.2 million policies (or 5%) from the 2010-2011 year. Personal Motor comprised the largest general insurance class (12,877,716 policies) followed by Home (11,123,760 policies).

Claims

Claim numbers increased by 1% overall during the reporting year. However, the claims-to-policy ratio for all claims remained unchanged at 10%.

There were some significant changes in claim numbers in certain personal insurance classes such as Travel and Home. In relation to travel claims, Code Participants advised that some of the 31% increase in claims related to the collapse of the airline Air Australia on 17 February 2012. In addition, expanded risk coverage within these types of policies may have led to additional claims being lodged.

Declined Claims

The number of declined claims has increased over the past three reporting years from 2009-2010 to 97,118 in 2011-2012.

Although the number of declined claims in 2011-2012 represented only 3% of general insurance claims lodged in that period (up from 2% in 2010-2011) the 46% increase between 2010-2011 and 2011-2012 was significant.

In part, the 2011-2012 data can be explained by a 53% increase in declined claims in personal insurance (representing 91,451 declined claims) – particularly in relation to the Home, Personal Motor and Travel categories which increased 57%, 66%, and 55% respectively.

Code Participants informed us that the following factors may have contributed to the increase in declined claims in 2011-2012:

  • The ongoing impact of the 2010-2011 Queensland flood events, as some claims were not decided until this reporting year due to the difficulty in establishing whether the damage and/or loss claimed was due to flood.
  • Claims generated by extreme weather events during 2011-2012 which were declined because the damage and/or loss claimed was not covered by the policy terms.
  • Continued refinement of internal data recording and reporting systems.

 

We have identified that Code Participants may have also included partially accepted claims and withdrawn claims numbers when calculating declined claims data. In our view, a withdrawn claim is one that it is withdrawn before a Code Participant formally accepts or denies the claim whereas a declined claim is one where a Code Participant has made a decision to deny indemnity having had regard to the terms and conditions of the particular policy. On that basis we consider that data on declined claims should exclude partially accepted claims and/or withdrawn claims and we encourage Code Participants to review how effectively they record and report declined, partially accepted and withdrawn claims in the next reporting year.

In 2011-2012, 55 Code Participants identified 120,573 claims as withdrawn – a figure that represents 3% of all claims made. We believe this figure is indicative only for the reasons noted above and because 96 Code Participants were unable to provide specific withdrawn claims data for analysis. In addition:

  • We were unable to ascertain, from the data reported to us, the stage at which claims were withdrawn and/or the reasons for withdrawal.
  • There was a significant disparity between the number of declined Personal Motor claims (7,201) and the high number of withdrawn Personal Motor claims (46,728), which we recommend Code Participants review.

 

As highlighted by ASIC in its Report 245 (‘Review of general insurance claims handling and internal dispute resolution procedures’ – August 2011), the ability by Code Participants to differentiate and separately report on withdrawn claims data in particular in future reporting years will enhance analysis and assist Code Participants and FOS to more readily identify emerging trends in declined claim rates.

Disputes and Internal Dispute Resolution

We note that recent data published by FOS between 1 July 2012 and 31 March 2013 has shown a reduction in general insurance dispute numbers over the first nine months of this financial year.

During 2011-2012, however, Code Participants recorded a 24% increase in the number of internal disputes lodged. This was not unexpected given the 46% increase in declined claims. It is also consistent with the 19% increase in the number of general insurance disputes lodged at FOS during the reporting year (see page 26 of the Financial Ombudsman Service 2011 – 2012 Annual Review). Code Participants reported a substantial increase (26%) in disputes arising from personal insurance classes. There was also a notable 25% increase in disputes about insurance claims. Other causes for disputes included matters arising from buying insurance and matters related to services provided by Code Participants’ authorised representatives, employees and service providers.

Some of the disputes concerning insurance claims related to claims decisions or delays in claims handling that arose from the impact of natural disasters in 2010-2011.

Code Participants also identified heightened consumer awareness of the availability of internal dispute resolution as another factor contributing to the increase in dispute numbers.

The outcomes of internally reviewed disputes remained relatively consistent with previous reporting years and largely in favour of Code Participants, as already indicated in the aggregated industry data summary. We encourage Code Participants to monitor claims handling and IDR frameworks to ensure that processes are fair and transparent and do not, in themselves, form the basis of disputes.

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