Insurance companies in Australia are being called on to enhance their commitment to customer fairness as consumer complaints about insurance policies continue to rise. The Fairness in Insurance report, released by the Actuaries Institute, has challenged insurance boards to strengthen their oversight of customer treatment, with a focus on fairness in product design, pricing, and claims handling.
The report, authored by Ian Laughlin, former deputy chair of the Australian Prudential Regulation Authority (APRA), has underscored the critical role that boards play in ensuring fair treatment for policyholders. Laughlin suggested that, given the current high levels of customer dissatisfaction and increased public scrutiny, boards have an opportunity to implement frameworks that prioritise fairness alongside profitability.
“Fairness should be put on a pedestal, and boards can best do that,” Laughlin stated in the report, emphasising that mutual trust and fairness are essential to the insurance system. He argued that policyholders are essentially buying a “promise” from insurers and expect that promise to be upheld.
The paper highlighted various factors contributing to dissatisfaction, including rising premiums, “lowball” settlements after natural disasters, and differential pricing that favours new customers over existing ones. These issues have led to a surge in complaints and scrutiny from regulatory bodies and the public. Notably, many Australians affected by the 2022 east coast floods were dissatisfied with settlement offers they felt were inadequate.
The report draws attention to findings from the 2019 Financial Services Royal Commission, which established fairness as a guiding principle for financial services companies. These findings have heightened community expectations for fair treatment from insurers. However, the report noted that achieving fairness is challenging due to the complex and sophisticated nature of insurance products, as well as the responsibility insurers have to deliver returns to their shareholders.
Laughlin recommended that insurance boards implement a series of structured questions to assess customer fairness in their operations. These questions cover areas including:
This approach, Laughlin suggested, can provide valuable insights into how policies affect vulnerable groups and help identify areas for improvement.
Laughlin called on boards to align fairness initiatives with corporate values and consider fairness as a critical element in sustainable business strategy. He emphasised that while the insurance business model involves spreading risk, boards must ensure that fairness remains at the forefront of decision-making.
By prioritising fairness, the report argued, insurers can improve their reputation and foster stronger customer trust, ensuring the long-term viability of the insurance system.
What are your thoughts on the current state of the Australian insurance industry? Share your comments below.
