“We are expecting more investigative and enforcement activity by ASIC [Australian Securities and Investments Commission],” said Tiarn Pauletto (pictured above), principal at insurance-focused national law firm, Gilchrist Connell.
Sydney-based Pauletto’s practice acts for insurance companies in financial lines matters, subrogated recoveries and property claims.
Few industry experts would likely disagree with her view that a proactive regulator is one of the insurance industry’s biggest 2024 challenges.
Alan Kirkland, ASIC’s commissioner, has made it clear that investigating the industry and penalising it for any wrongdoing are priorities.
“We have put the industry on notice,” said Kirkland. “We expect action on all the issues that we identified as weaknesses.”
Kirkland made the comments earlier this month during his opening statement at the government’s inquiry into the response of insurers to the 2022 floods. He was referring to “systemic failures” by insurers to live up to pricing promises, as well as claims handling problems and what he described as longer standing issues with the industry’s “processes, practices and resourcing.”
“As we all know, the amount of ASIC - and other regulatory - investigations has increased significantly since the Royal Commission, but some of it has appeared slightly reactive,” said Pauletto. “However, ASIC has recently made a number of statements of intent for the next year to 18 months that suggest it will be even more aggressive, albeit more measured in its targets.”
The insurance law expert said her firm’s experience over the last year or so indicates that, in 2024, the regulator intends to target greenwashing, sham green investment funds and improper superannuation advice and service.
At last year’s Australian Financial Review ESG Summit in June, ASIC chair Joe Longo was able to say that greenwashing has been an enforcement priority “for some time.”
He referred to a year that saw 23 corrective disclosure outcomes, the issuing of 12 infringement notices and ASIC’s first civil penalty proceedings.
Net zero statements and targets without a reasonable basis or that are factually incorrect.
Terms like ‘carbon neutral’, ‘clean’ or ‘green’, that aren’t founded on reasonable grounds.
Overstatement or inconsistent application of sustainability-related investment screens.
Use of inaccurate labelling or vague terms in sustainability-related funds.
Pauletto said artificial intelligence (AI) is another focus area for the regulator.
“It also intends to focus on AI, primarily how businesses use algorithms and AI in setting prices and dealing with consumers and where businesses have inadequate cybersecurity measures, increasing risks to consumers,” she said.
The net result of ASIC’s regulatory concerns, said Pauletto, is a likely increase in the number of investigations and claims.
“Therefore, a greater need for us to advise our statutory liability insurers both at the underwriting stage and in relation to claims, and our corporate clients on their publications, processes and security measures,” she said. “The need for diligent underwriting and an informed placement process, is more important now than ever.”
In its latest annual report, ASIC said its enforcement actions resulted in 35 criminal convictions, nearly $190 million in civil penalties and 130 new investigations.
“ASIC remains focused on maximising our regulatory impact by addressing areas of greatest harm,” said Longo. “Our priorities reflect the key trends and emerging issues in our regulatory environment, including the growth in sustainable finance, Australia’s ageing population, emerging and disruptive digital technologies and associated risks, and product design and distribution.”
In November, at the regulator’s annual forum in Melbourne, ASIC’s deputy chair, Sarah Court, announced 2024’s “enforcement priorities.” (see video immediately below)
“We are taking matters to court and pursuing higher penalties than ever before,” she said. “And we are not deterred from taking challenging cases where legal outcomes are not guaranteed.”
Court also explained ASIC’s broader aim.
“Our goal is to create a culture of compliance across Australia’s financial system and the corporate sector more generally through decisive and high-profile enforcement action,” she said.
What areas of the industry would you like to see ASIC investigating? Please tell us below
