Politicians are largely to blame for letting the $41 billion insurance industry off the hook over problems exposed by the Hayne royal commission, the corporate regulator will say in a submission to the inquiry.
Federal Treasurer Josh Frydenberg slammed the Australian Securities and Investments Commission under Labor-appointed former chairman Greg Medcraft on Saturday, accusing it of enabling “appalling” conduct, despite Mr Medcraft leaving the job almost a year ago.
The Treasurer said he would look to introduce a new “remediation power” to help speed up compensation for mistreated customers.
However, ASIC said that industry lobbying of successive federal governments had “severely limited” the regulator’s power to hold the insurance sector to account.
The insurance industry has been exempted from key consumer protections including financial services conduct and complaint handling provisions in the Corporations Act, as well as unfair contract term provisions in the ASIC Act.
“The insurance sector has been exempted from a range of laws which have seen ASIC’s ability to review the sector severely limited,” ASIC senior executive Greg Kirk, the former long-time head of the regulator’s insurance team, told The Australian Financial Review.
The government is yet to implement almost 50 recommendations handed down by an 18-month parliamentary committee in March which warned that consumer protections in life insurance were “substantially weaker” than in other parts of the financial services sector.
The sector has also been lobbying to convince a parliamentary committee to overturn laws that ban insurers from covering medical costs in the workplace, as it seeks to replace revenue after this year’s federal budget proposals to clamp down on life insurance fees in superannuation – where 70 per cent of Australian are insured.
ASIC, APRA the biggest losers
Banks, insurers and super funds had expected to come under fire from the royal commission but regulators have been one of the biggest losers, with APRA and ASIC facing the fiercest criticism.
ASIC came under heavy fire at the commission again last Thursday when it was revealed that CBA’s insurance business, CommInsure, agreed to donate $300,000 to charity for misleading advertising on its life and trauma insurance, rather than face a possible $8 million fine as it emerged the bank had toned down an ASIC press release about the breach.
“Getting something done and done quickly is important and maximum penalties don’t necessarily reflect what would be issued by a court,” said Mr Kirk, who said that misleading advertising was one area where ASIC had been able to exert its powers against the sector.
The criticism appears to have sparked a flurry of activity by ASIC, which has launched legal action against NAB over the fees-for-no-service scandal and on Friday launched legal action against ANZ over its 2015, $2.5 billion capital raising, with executives from ANZ, Citigroup and Deutsche Bank already facing criminal charges from the ACCC.
On Monday, the commission is expected to wrap up its examination of the $18 billion life insurance sector as it finishes hearing from REST’s Lachlan Ross, then hear from AMP’s Paul Sainsbury and Allianz executives.
Wye River fires
The commission is then expected to spend most of the week examining the $23 billion general insurance sector with case studies from AAI (Suncorp) trading as AAMI, Allianz, IAG and Youi.
ASIC fined AAMI $43,200 last year for misleading advertising following the 2015 Wye River bushfires on Victoria’s Great Ocean Road because its “complete replacement cover” left people who lost their home out of pocket when the assessed cost of rebuilding their houses was exceeded.
But ASIC will warn that the majority of households still have “sum insured” cover, which risks leaving people’s houses heavily under-insured and should be a key focus of the commission.
“We don’t want to see the reputation of total replacement insurance trashed. Most insurers continue to offer sum insured policies where all the risk falls on consumers,” Mr Kirk said.
Mr Frydenberg said that if Commissioner Hayne – whose interim report is due this month – sought an extension it would be “favourably” considered, but insiders suggest that now appears unlikely with the ball for any extension firmly in the government’s court.