The Insurance Council of New Zealand (ICNZ) has launched its revised Fair Insurance Code which came into effect on 1 April 2020. The revised Code places new broad duties on insurers and increases customer accessibility to the Code. The revision complements impending Government regulation to improve culture and conduct in the financial sector through the introduction of the Financial Markets (Conduct of Institutions) Amendment Bill (COFI Bill) (see our article here). It also reflects key tenets of the Insurance Contract Review process, which aims to improve customer understanding of insurance, and places more onerous duties on insurers.

Relevance to members of ICNZ and those who deal with them

The Code sets out industry best-practice standards for ICNZ members in all their dealings with customers.  Breaches of the Code may be the subject of a complaint to an external dispute resolution scheme.[1] The Court has also taken the Code into account in interpreting insurer’s obligations.[2]

Despite delay in the COFI Bill’s progression, the Code imposes similar obligations on member insurers which we see as likely to reflect an indication of the conduct expected of insurers in a period of tightening regulation of the insurance industry.

Key changes to the Code

New responsibility on insurers

The revised Code reinforces member insurers’ responsibilities to act transparently, with integrity and in utmost good faith, and requires them to act in the interests of customers in fulfilling their duties. Insurers must also develop, market and sell products responsibly, and identify and address instances of poor conduct.

The COFI Bill addresses what it means to act “responsibly” at a high level, with further details to be specified in regulations. The COFI Bill requires financial institutions (such as insurers) or intermediaries to comply with a ‘fair conduct principle’. This means treating customers fairly by paying due regard to their interests in a broad range of circumstances, from product and service design to post-sale dealings. Institutions must also establish a publicly available fair conduct programme (FCP), which is a set of processes, systems, and controls designed to ensure compliance with the fair conduct principle.  As part of this programme, institutions must put in place methods for regularly reviewing and identifying deficiencies in its effectiveness, and promptly address any deficiencies identified. Institutions must also comply with any regulations that regulate or prohibit incentives based on volume or value sales targets.

The Cabinet paper which preceded the introduction of the COFI Bill provided some guidance on what the ‘fair conduct principle’ may mean in practice, although this definition is yet to be adopted in legislation.[3]  The paper defines “fair treatment” as (including but not limited to):

• providing clear, fair and not misleading information to customers, and keeping customers appropriately informed at every point of interaction;
• ensuring customers do not face unreasonable pressure to retain or change products, switch provider, submit a claim or make a complaint;
• designing and selling products and services that meet the customer’s needs; and
• establishing and maintaining effective and transparent complaint-handling systems.

Submissions to the Bill were due on 30 April 2020. As a general comment, industry submissions seek further clarity about the definition of the ‘fair conduct principle’ and requirements of the FCP to ensure consistent application. It is not clear to submitters how the FCP will work in practice based on the COFI Bill’s current version, or what its full implications will be. There is also a general sentiment that the FCP is likely to be a detailed document and could contain commercially sensitive information. There may be limited value in making full details available to the public, as it risks inundating costumers with non-product specific information.  The Select Committee report is due on 12 August 2020.

Improved compliance with the Code

The revised Code strengthens compliance mechanisms. Like proposed requirements under the COFI Bill in relation to fair conduct programmes, the revised Code requires insurers to have appropriate internal assurance processes to enable monitoring and compliance. Insurers must also provide compliance reports to ICNZ as required.

Under the 2016 Code, insurers had a duty to report any significant breaches of the Code to ICNZ.  The revised Code clarifies that a “significant breach” is a breach (or several breaches) of any part of the Code that could bring the industry into disrepute, and for which there is no reasonable explanation. Examples include a claim being unsettled after 12 months, the handling of a claim or complaint causing serious hardship to the policyholder, and non-compliance with an order from an external dispute resolution scheme.

Improved accessibility of the Code

Consistent with a key aim of the Insurance Contract Review to improve customer understanding of insurance information, the revised Code aims to raise customers’ awareness of their rights. Insurers must display the Fair Insurance Code logo on their websites, claims and complaints documentation.  Insurers are also required to help customers with disabilities or those for which English is not their first language to understand the Code.

Strengthened privacy protections

Previously, customers were able to request a review of the insurer’s reasons for withholding certain information through the Privacy Commissioner. The revised Code reflects customers’ Privacy Act entitlements. Customers can make a complaint to the Privacy Commissioner if they think their privacy has been interfered with, including if they disagree with the insurer’s reasons for withholding information. The Commissioner can investigate the complaint for a breach of the Privacy Act. The Commissioner can also compel the insurer to meet with the customer, provide the Commissioner with information, or facilitate an agreed settlement.

Under the revised Code, insurers are also required to arrange for the security and storage of personal customer information held by the insurer.

Key actions to consider

The revised Code slots into a broader legal reform of the insurance industry to better serve customers’ interests, which in turn is intended to promote trust and confidence in the insurance sector.

With the revised Code taking effect immediately and the COFI Bill expected to take further time to finalise, there may be some ongoing uncertainty as to what the new duties on insurers mean in practice. All insurers should pay close attention to how the COFI Bill develops – in particular, how the ‘fair conduct principle’ and requirements of the FCP is further developed.

In the meantime, we recommend that member insurers establish and maintain robust internal systems and processes to identify, manage and remedy breaches of the Code. Depending on existing systems, there will likely be a more immediate increase in administration, monitoring and compliance costs, rather than a staged phasing of costs in response to the COFI Bill.

Footnotes

[1] The external dispute resolution providers include the Insurance and Financial Services Ombudsman or the Financial Services Complaints Limited

[2] For example, Young v Tower Insurance Limited [2016] NZHC 2956.

[3] Cabinet Office paper “Conduct of Financial Institutions: Introduction of a New Conduct Regime” (25 September 2019) at [28].

Read Cover to Cover: Issue 20