Royal Commission recommends criminal or civil sanctions for insurers

Some carriers accused of "egregious" or "unconscionable" behaviour could be in legal danger

Royal Commission recommends criminal or civil sanctions for insurers

Insurance News

By Duffie Osental

In move that will reverberate across the insurance industry, the royal commission recommended that criminal and civil sanctions be meted out to several insurers – including CommInsure, TAL, Allianz, Suncorp, Youi and Freedom – for using old definitions and dodgy tactics to deny claims.

Kenneth Hayne, High Court justice and royal commissioner, also recommended an overhaul to how insurance companies handle claims after the royal commission heard a series of heart wrenching testimonies as part of its investigation into the financial sector, according to The Canberra Times. One of these cases involved the 26-year-old son of Baptist minister Grant Stewart who was suffering from Down syndrome. Stewart’s vulnerable son was the victim of high-pressured sales tactics employed by Freedom Insurance to buy ‘worthless’ insurance products.

"I consider that by selling insurance to Mr Stewart’s son, in circumstances where the sales agent knew, or ought to have known, that Mr Stewart’s son did not understand what he was agreeing to, Freedom may have engaged in unconscionable conduct," said Hayne.

The royal commission’s final report recommended that life insurance contracts be covered by unfair contract term laws and that insurers should treat claims as a financial service – a move which, according to The Canberra Times, will send shockwaves through the general insurance industry, which has long fought for its products to be treated differently to other financial products.

However, Hayne notes that such a move will make it much easier for people with insurance contracts to challenge those contracts if they use dodgy or old definitions of illnesses, which is a key issue for the royal commission.

"There can be no basis in principle or in practice to say that obliging an insurer to handle claims efficiently, honestly and fairly is to impose on the individual insurer, or the industry more generally, a burden it should not bear," said Hayne.

Hayne also recommended the Insurance Contracts Act be amended for consumer insurance contracts to replace the ‘duty of disclosure’ with ‘a duty to take reasonable care not to make a misrepresentation to an insurer.’ Hayne has also recommended scrapping grandfathered commissions on life insurance products.

According to The Canberra Times, the federal government said it supported all these recommendations in its interim response to the final report.

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