A wider array of alleged contraventions
Traditionally, enforcement action against insurers has predominantly focused on alleged breaches of the false, misleading or deceptive conduct provisions (ss12DA, 12DB and 12DF of the Australian Securities and Investments Commission Act 2001 (Cth), s1041H(1) of the Corporations Act 2001 (Cth)) and unconscionable conduct (s12CB of the ASIC Act). However, of late, the data shows that ASIC has resorted to a wider array of alleged contraventions, including:
- insurers' general obligations as Australian financial services (AFS) licensees under s912A of the Corporations Act;
- insurers' duty of utmost good faith under s13 of the Insurance Contracts Act 1984 (Cth); and
- the unfair contract terms regime in the ASIC Act.
These are a mainstay of ASIC enforcement activity and an area of ongoing focus, especially in the context of insurers' pricing representations to customers, and potential 'greenwashing' claims regarding insurers' commitment to environmental, social and governance (ESG) initiatives. Recent activity in this space includes the $40 million penalty imposed on a general insurer for inaccurate discount promises made to customers. Especially in the current climate, insurers should take abundant care to ensure that information published about their insurance policies is complete and transparent, and customers are obtaining the benefits they are promised.
The duty, which is implied into the vast majority of Australian insurance contracts, requires insurers to act 'consistently with commercial standards of decency and fairness' and 'with due regard to the interests of the insured'. Since March 2019, the duty has been given teeth as a civil penalty provision, subject to significant penalties for corporates of up to $11.1 million per contravention, three times the benefit derived or 10% of turnover.
Many of the general obligations of AFS licensees – including the potent 'overarching' duty to ensure services are provided efficiently, honestly and fairly – are now civil penalty provisions with steep potential penalties. Since 1 January 2021, the handling and settlement of insurance claims is no longer 'carved out' and is also subject to these obligations. ASIC advises that insurers need to ensure timeliness in claims management, minimum intrusion and transparency, and to accommodate vulnerable customers in order to meet this obligation, which has become far more prominent in enforcement activity in recent years.
These have been a key focus area for ASIC recently, since the unfair terms regime was expanded to include insurance policies taken out or renewed since 5 April 2021. Following an extended consultation period earlier this year, the regulator has commenced its first two proceedings alleging unfair contact terms in an insurance contract, both involving standard form consumer-facing insurance products (ie home building and contents and life insurance policies).
More common historically, when other enforcement avenues were not available to ASIC, unconscionable conduct requires serious wrongdoing worthy of condemnation, such as 'dishonesty, predation, exploitation [or] sharp practice'. In a 2019 judgment, Select AFSL admitted to contraventions of (among other things) s12CB of the ASIC Act by adopting pressure tactics and otherwise mis-selling life insurance products over the phone to vulnerable consumers with limited English, who were unable to understand the products being sold to them.