A government-ordered inquiry into Australia's financial sector questioned on Wednesday whether the insurance industry's system of self-regulation should be overhauled amid evidence of widespread misconduct.
The Royal Commission, as the powerful inquiry is called, said in a paper it is considering whether laws should be strengthened to protect consumers. It will accept comments from the public until Oct. 25 before making a recommendation to the government.
"Is the current regulatory regime adequate to minimise consumer detriment?" the inquiry, headed by former judge Kenneth Hayne, asked in the paper.
Rounding up 10 days of public hearings, lawyers assisting the inquiry detailed last week alleged misconduct at Commonwealth Bank of Australia (CBA) and AMP Ltd (AMP) , as well as subsidiaries of Japan's Dai-ichi Life Holdings Inc 8750.T and Germany's Allianz SE ALVG.DE , plus six other insurers.
The insurance sector revelations were among the inquiry's most damaging, with shares in Insurance Australia Group (IAG) , Clearview Wealth (CVW) and Freedom Insurance Group (FIG) falling by between 10 percent and 75 percent since the inquiry began.
The life and general insurance industry sold over A$41 billion ($29.78 billion) worth of insurance policies to consumers in 2017, according to the inquiry.
Insurers in Australia are excluded from laws requiring fair contracts and requiring them to handle policy claims honestly and efficiently. They are, however, required to act in good faith and must otherwise obey company, insurance and contract laws.
The inquiry is calling for arguments justifying those exclusions, following revelations some insurers relied on unfair terms and conditions, such as outdated technical medical definitions, to avoid payouts.
Rather than having to abide by statutory code of practice, the industry successfully lobbied the government for a self-policed code of practice in 1994.
But the hearings revealed general insurers breached self-imposed regulations on over 31,000 occasions without penalty in recent years, casting doubt on the industry's ability to regulate itself.
"Should a failure to comply with the general insurance code of practice or the life insurance code of practice constitute ... a failure to comply with financial services laws...?" the paper asks.
The quasi-judicial inquiry can recommend regulatory reform and prosecutions and is due to table an interim report in coming days before issuing its final recommendations to the government in February 2019. ($1 = 1.3767 Australian dollars)
