COVID-19 Toolkit – ASIC outlines expectations of general insurers on account of COVID-19
On 14 April 2020, the Australian Securities and Investments Commission (ASIC) released an update on its regulatory work and priorities in light of the COVID-19 pandemic. In that update, ASIC stated that it expected regulated entities to treat customers fairly, avoid adding further financial harm or burden on consumers, and to act to maintain the integrity and efficiency of markets.
ASIC followed this up by writing to general insurers providing further explanation of its expectations, including in respect of the assessment and handling of claims. We outline these expectations below.
General insurers should take note of these expectations and ensure their claims assessment processes are adjusted accordingly where required.
General approach and General Insurance Code
As a starting point, ASIC expects that general insurers consider their conduct in light of the COVID-19 pandemic and will act in a fair, professional manner that is in line with the duty of utmost good faith.
Further, ASIC has stated that it is important that general insurers stand by the commitments made in the 2020 General Insurance Code of Practice (2020 Code). Although general insurers are continuing to transition to comply with the new commitments by 1 January 2021, ASIC has stated that a commitment to meet the additional consumer protections contained in the 2020 Code, particularly those relating to vulnerability and financial hardship, is important at this time. ASIC has also stated that it expects that the directors of general insurers will seek affirmation, through board reporting, that the 2020 Code commitments are being met.
Claims handling and complaints
ASIC has stated that, as to its expectations for claims handling and complaints :
- it expects insurers to handle insurance claims with utmost good faith and to deal with complaints genuinely, promptly, fairly and consistently. ASIC expects that directors will seek affirmation, through board reporting, that this is happening;
- insurers must ensure that their staff do not, either intentionally or inadvertently, discourage consumers from making claims;
- insurers should be flexible in their treatment of consumers whose personal and/or working conditions have changed as a result of the COVID-19 pandemic. Specifically, ASIC has stated that it expects that a consumer’s ability to make a claim, or have their claim handled in a timely manner, should not be affected by insurer requirements that conflict with Government requirements or recommendations in place because of COVID-19. For example, ASIC expects insurers to:
- not deny claims solely because a consumer’s circumstances have changed due to the COVID-19 pandemic and they do not notify their insurers;
- take reasonable steps to manage claims efficiently and effectively within best practice timeframes;
- take all practical steps to source repairers and parts to help ensure that property and motor vehicle repairs are not avoidably delayed by travel restrictions;
- waive or alter requirements that are impractical due to the COVID-19 pandemic; and
- not refuse to assess or pay claims because the consumer is unable to pay the excess upfront.
- insurers should proactively apply the Urgent Financial Need of Benefits provision in section 7.7 of the 2014 General Insurance Code of Practice.
Underwriting and communication
ASIC has also set out its expectations relating to collection of premiums and underwriting, primarily that it expects general insurers to be flexible when dealing with consumers. This includes considering:
- how best to respond and keep key insurance coverage in place so as to protect consumers who are no longer able to pay premiums due to reduced income. This could include premium ‘holidays’, deferrals or reductions for a reasonable period of time. ASIC has stated that general insurers should not automatically cancel or lapse policies for non-payment of premiums;
- whether outcomes will be fair for consumers if they must actively ‘opt in’ or make a request in order to receive any benefit insurers offer in response to COVID-19 pandemic. ASIC has provided the example of automatic extensions of cover and pro-active contact with the consumer as a course of conduct that would not result in an inconsistent and unfair outcome for policyholders; and
- the needs and vulnerabilities of their consumers when deciding whether to renew cover or make changes to policy terms and price.
ASIC has also stated that it would welcome the opportunity to discuss further approaches to support Australian policyholders who are currently suffering hardship and financial distress, including the refund of premium on policies where the risk of loss has fallen significantly as a result of the COVID-19 pandemic.
ASIC also expects that general insurers will communicate proactively, clearly and accurately with consumers about their insurance cover. Any new and significant COVID-19-related exclusions on policy renewal should be clearly disclosed, and these policies should not be offered to people who are unlikely to be able to claim under them. Information about key coverage limitations in existing products such as waiting periods and exclusions for pandemics must also be clearly and prominently disclosed.
ASIC has stated that it does not currently intend to seek data on claims connected to COVID-19 over the coming months. However, it does envisage seeking such data as the operational impact of the pandemic subsides. It has stated that general insurers should identify claims connected to the effects of COVID-19.
The letter from ASIC suggests that it intends to use its existing regulatory tool-kit to pressure general insurers to take steps in claims handling and underwriting that will support consumers and the economy in light of the COVID-19 pandemic.
In respect of claims handling, ASIC’s focus appears to be on ensuring that claims are handled consistently with the insurer’s obligation of utmost good faith. As you may know, ASIC recently commenced a prosecution of Youi Pty Ltd seeking declarations for contraventions of the duty of good faith under the Insurance Contracts Act 1984 (Cth) in respect of its handling of a claim unrelated to the COVID-19 pandemic. With significant penalties now available for such contraventions, general insurers should take careful note of ASIC’s stated expectations on what ‘utmost good faith’ requires of claims handling in the current circumstances.
It is also worth noting that the draft legislation that will make handling and settling an insurance claim a ‘financial service’ under the Corporations Act 2001 (Cth) is intended to come into effect on 1 July 2020, if it is passed. If this occurs, ASIC may very well have more levers available to it to pressure general insurers in respect of settling and handling claims.
However, ASIC has not gone so far as to press for insurers to cover claims that are not covered or otherwise excluded under the policy, which is something being considered in some US States for business interruption insurers. That said, some of the expectations relating to flexibility could possibly trespass on policy conditions. Insurers should ensure they have robust and comprehensive processes in place to ensure that claims proposed to be declined are reviewed and considered in detail in light of ASIC’s expectations.
Similarly, targeted policies and procedures may also need to be implemented in respect of underwriting to ensure that general insurers are meeting ASIC’s expectations in that regard.
Finally, the direct request by ASIC that directors of general insurers seek affirmations from the board relating to claims handling and adoption of the 2020 Code is likely to result in a significant volume of work being performed at an operational level to review current claims and implement any changes required to comply with the 2020 Code. Claims managers and teams may therefore need to begin considering the necessary reporting requirements and policies required to monitor and report on these matters.