The Royal Commission into misconduct in the Financial Services Industry released its Final Report in February after 69 days of hearings with 76 recommendations made and 22 referrals to regulatory authorities for criminal investigation and potential prosecution.
Of the issues that were raised during the royal commission, none related to insurance broking.
In total, there were 15 recommendations relating to the insurance sector, with the major being a recommendation which suggest ASIC conduct a review as to whether the exemption for a ban on conflicted remuneration remains justified for general insurance products. This review should be completed by June 2022 with no change to current arrangements proposed in the meantime.
Other key themes in the Royal Commission recommendations that are relevant for general insurance clients include:
- Conflict of Interest – must be recognition that conflicts of interest and conflicts between duty and interest should be eliminated.
- Cold Calling – unsurprisingly, cold calling fell under scrutiny – and an outright ban has been recommended.
- Add-on Insurance – should be sold completely separately from the original insurance product. It has also been recommended that a cap be placed on the commissions that car dealers can earn when they make add-on insurance sales.
- Claims Handling – currently, ASIC is limited in how much it can intervene in the handling of claims. The recommendation is that ‘claims handling’ would be seen as a ‘financial service’ within the Corporation Act – placing the emphasis on insurers to be increasingly honest and fair.
- Funeral Insurance – it is recommended that this be reclassified and brought under the ASIC regime.
- Approach to Enforcement – ASIC is being encouraged to prosecute and penalise, rather than settle and enter into enforceable undertakings.
The level of tolerance for misconduct and any breach of the regulatory framework will reduce considerably, with strong obligations on firms to identify, report and deal with misconduct and breaches, to remediate clients where losses have occurred, and to ensure they are not repeated.
Whilst the royal commission did not find any systemic problems with the general insurance industry, it highlighted the need for high standards across the financial services sector.
The true impact on general insurance of the Hayne Royal Commission will not be clear ‘for several years’. Insurance brokers may not have contributed to the issues raised by Commissioner Hayne, but they are still affected by the reputational & regulatory fallout.