Regulatory revolution The Hayne royal commission is sure to inspire a radical rethink of how financial services – including general insurance – is regulated. But what will it look like? By John Deex & Wendy Pugh “WHY DID IT HAPPEN? WHAT CAN BE DONE TO AVOID IT happening again?” These are the key questions raised by Commissioner Kenneth Hayne in his interim report to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The hearings to date have uncovered some deplorable behaviour, with the general insurance industry spending a week having some lamentable failings exposed to the full public gaze. General insurers had hoped to be nothing more than a sideshow, with the banks, financial advisers and life insurers hogging the limelight. And while it can be legitimately argued that those other sectors’ transgressions were worse, general insurers still had to endure their fair share of damaging revelations and horrible headlines. Commissioner Hayne was invited to find all the general insurers that appeared – Allianz, IAG, Youi and Suncorp – had engaged in misconduct following days of punishing questions over complacent attitudes to compliance, the selling of “junk” add-on insurance, and poor claims handling (see following article). While the executives in the witness box broadly bowed to the interpretation of Counsel Assisting Rowena Orr and colleagues during the hearings, insurers have attempted to claw back some credibility after the event through their submissions in response. 10
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But the damage may have been done, and the commissioner’s thoughts have already turned to what happens next. There is one more round of hearings, focusing on policy issues raised by the first six rounds, set to take place in November. The final report will be published early next year. But there are already clues as to what the repercussions might be. A “policy questions arising” paper, published after the insurance round of hearings, puts a series of suggestions to the commissioner. And while his interim report does not take into account the general insurance hearings, the report’s executive summary highlights potential regulatory changes that would affect the whole financial services sector. The report features a series of damning statements and points to ways the regulatory landscape might change. Why did the bad behaviour happen? Too often, the commissioner says, the answer is greed – “the pursuit of short-term profit at the expense of basic standards of honesty”. Selling often became the “sole focus of attention”, Commissioner Hayne says. “From the executive suite to the front line, staff were measured and rewarded by reference to profit and sales.” Commissioner Hayne is quite clear that past misconduct has not been appropriately dealt with by the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA). October/November 2018
