Submissions

This is a further supplementary submission to our previous two submissions provided to the committee’s inquiry into the insurers’ responses to 2022 major floods. In our first supplementary submission we recommended that the committee seek specific improvements to the self-regulated General Insurance Code of Practice to address the issues impacting consumers, particularly vulnerable consumers.

The extreme events since the Black Summer bushfires have brought to light fundamental challenges in accessing and affording insurance across Australia. Rectifying these problems with insurance will safeguard that it can be sustainable in the long term as natural disasters continue to increase in frequency and severity.

We believe Centrepay is an invaluable service provided by Centrelink for social security recipients. The financial counsellors as well as the solicitors in our Centre agree that Centrepay is an important financial self-management tool for disadvantaged consumers and we strongly support its continued operation. However, there are clearly some serious and systemic reforms that need to take place within Centrepay to ensure that it is a tool that helps customers and does not expose them to practices which undermine their financial resilience rather than support it.

The financial abuse victim survivors we assist commonly present to us with complex financial debts, to multiple providers, of different credit and/or insurance products. Sometimes they have debts owing as a direct result of financial abuse, through fraud, coercion to take on the debt, or entering debt because their abuser does not contribute to shared costs. In other instances, the debts can arise in the aftermath of financial and other abuse, as they try to escape or re-start a safer life. Whatever the cause, the challenge for people and their advocates is the same – a complex web of debt (or in the case of insurance, coverage) that needs to be unravelled and resolved, which can be difficult even without the added trauma of escaping an abuse situation. This submission gives an insight into the ways the financial services regulatory framework fails these Australians.

BNPL functions in largely the same way as other forms of credit, and carries the same risks. In recent years, BNPL has increasingly appeared in the debt mixes of people in financial hardship who seek assistance from financial counsellors, community legal centres, and other community services. As of mid-2023, financial counsellors reported that a majority of their clients had BNPL debts – and those clients that do had an average of three separate BNPL debts. The fact BNPL is not regulated as credit means these people in financial hardship currently do not have the same consumer protections as they would for other forms of credit.

There is a real opportunity now to recommend meaningful changes in consumer insurance. Every year that the Australian insurance industry and regulatory environment do not make the necessary systemic changes the costs of insurance and the amount consumer harm continue to grow.

Since the last review of the General Insurance Code in 2018, there have been 17 extreme weather event catastrophes and a pandemic all of which have tested the sector and found it to be wanting. The insurance sector needs to lift its game and the Code needs to be strengthened.

Australia’s credit reporting framework is a fundamental aspect of the financial infrastructure, enabling lenders to assess the creditworthiness of individuals and businesses. However, it is essential to review and adapt this framework to reflect technological, economic, and cultural changes; policy objectives; and consumer expectations. There have been major regulatory and commercial changes in the credit and debt space since the current credit reporting framework was put into place including since the last comprehensive review. The current regime is no longer aligned with Australia’s consumer credit arrangements or with consumer expectations.

Reforming the Emergency Services Levy (ESL) is unfinished business that needs to be resolved to ensure fairer outcomes for consumers and improve insurance affordability. We welcome the announcement that an insurance monitor will be appointed to ensure insurers don’t keep premiums at elevated levels once the ESL is removed. Key to this transition is the creation of a price monitor, independent of industry, and empowered to investigate, conduct research, and collect and collate information relating to pricing practices.

We strongly support treating BNPL as credit and regulating it as such under the NCCPA. Passing the framework contained in the ED Materials represents a dramatic improvement in the oversight of BNPL. Subjecting BNPL providers to a form of responsible lending obligations and empowering ASIC to regulate BNPL as credit is a necessary step that will reduce consumer harms currently being caused by BNPL.

General insurance needs to be urgently reformed to ensure consumers, government and industry work more effectively together to mitigate against various increasing risks. This is particularly the case in a world where insureds have, for decades, misunderstood the insurance products they hold because of long, confusing, incomprehensible, and inconsistent product disclosure. This has led to insureds holding inappropriate products for their risks, unwelcome surprises at claims time, and endemic underinsurance. Standardising insurance definitions and reforming standard cover are key to improving outcomes for insureds in this context.

We affirm our previous support for the designated complaints function, and our previous comments about the design and structure of the legislation in our joint submissions to Treasury and the Senate Legislative Committee.  Our major concern is about the determination’s prescribed limit of just three designated complainants. When combined with other limitations in the determination this will have a serious impact on the function and outcomes of the designated complaints regime.

This supplementary submission aims to provide further information to the committee with respect to two key issues: how the committee can ensure that the insurance sectors acts to improve their processes; and standardising insurance definitions.

Financial Rights believes that the CGC should maintain its focus on claims handling given the continued number of calls from policyholders to the Insurance Law Service seeking advice regarding poor claims handling.

At the heart of the scams regulatory framework must be liability for reimbursement resting with industry. For the reasons and examples outlined in this submission, the only workable framework that will effectively disrupt scams and protect consumers would be a presumption of reimbursement of scam losses, with industry bearing the onus of proof otherwise. The regulatory framework needs to be governed by the key principles outlined in this submission.

In summary we are concerned about the ongoing impact of genetic discrimination on consumers. The current Moratorium on genetics and life insurance fails to adequately protect consumers against genetic discrimination, and does not meet the recommendations of the 2017 PJC Inquiry into Life insurance for an urgent ban on the practice. The Insurance Law Service has received calls from consumers who are concerned about the potential for genetic test results to impact their ability to access life insurance products and manage their and their families’ financial risk adequately. A total ban on the use of genetic results by life insurance companies, without any limits, caps, or exceptions, is the only appropriate policy reform solution to address the legitimate concerns expressed by consumers in this area.

The main goal of the ABA through the review of the Banking Code has been to reduce the reporting obligations on, and oversight of, member banks. This is a bad outcome for consumers. This joint submission responds to Consultation Paper 373 (CP373) with primary focus on the key changes to the Code amounting to reductions in consumer protections that we are most concerned about, particularly: the removal of the commitment in the current code to the clause 49 diligent and prudent banker obligation in regard to general consumer lending. We are concerned this will lead to a significant loss in practical oversight of a key area of banking (and in an area where breaches of the current Code are common); and the removal of the clauses referring to the complaint and IDR processes. We are concerned that not all of these processes are contained in law or regulatory guidance, and their removal significantly reduces the value of the Code as a public facing document.

More transparent data is critical to improve people’s insurance claims and disputes experiences and outcomes. Data is an important tool to hold super funds and insurers to account, and to drive improvements in claims and dispute handling across the industry.

Financial Rights is strongly supportive of a designated complaints function. A designated complaints function recognises the value of complaints from organisations with strong connections to communities, who are able to identify consumer issues at an early stage. Designated complaints will result in problems most affecting Australians being addressed appropriately and in a timely manner.

Financial Rights generally supports the position outlined in the discussion paper and will largely confine our comments to the proposed data dictionary.