SYDNEY,. Australian general insurance companies have breached their own self-imposed regulations on more than 31,000 occasions without penalties, a powerful misconduct inquiry heard today amid mounting calls for tougher oversight of the financial sector.
The revelations cast doubt on the industry’s ability to regulate itself and will ramp up pressure on the government to do more to combat rampant wrongdoing by the country’s banks, fund managers and insurers.
Rowena Orr, a lawyer assisting the inquiry, said the industry’s self-policing of its code of practice had not been effective, allowing some insurers to take advantage of customers.
In response, Robert Whelan, the head of the Insurance Council of Australia, the industry’s lobby group, said the body did not penalise its members for breaches because they focused instead on remediating customers.
The share prices of some of Australia’s largest general and life insurers have fallen as the latest round of hearings at the year-long inquiry, called a Royal Commission, publicly scrutinised their policies and behaviour.
Insurers in Australia are excluded from the responsibility to handle policy claims honestly and efficiently, and from laws applying to banks and other financial institutions requiring their contracts to be fair.
They are however required to act with good faith towards clients and must otherwise obey company, insurance, and contract laws.
General insurers are also excluded from regulations prohibiting the payment of commissions to third parties for selling their policies, even when the payments are conflicted.
The inquiry has heard insurers have paid extremely high commissions to third parties to sell unsuitable add-on insurance products that were often worthless.
The inquiry can recommend tougher regulations and prosecutions and is due to release its an initial report to the government by the end of September.
Whelan said he believed there was enough supervision from the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority.
He warned that if the law introduced a requirement of fairness to insurance contracts, it would discourage insurers and likely trigger their exit from some markets.
“I would be concerned that the industry would either have to rewrite or reprice their products or withdraw from some markets,” Whelan said. ? Reuters