The General Insurance Code Governance Committee (CGC) has called on insurers to improve transparency and communication with customers after a review of online applications for motor vehicle insurance.
The review looked at how 13 insurers handle online applications across 58 motor insurance brands. Authors note: the Design & Distribution obligations (inlcuding making a TMD available) together with Australian financial services laws requirements assists in understanding why there is a large number of brands compared to a smaller number of insurers.
The review found that insurers could be doing more to clearly explain to customers why they ask for certain personal details. The report noted that some insurers could not demonstrate how some questions in the applications were relevant to their decisions.
The review also found that when insurers decline to offer insurance, customers are often left with vague or confusing messages that do not clearly outline the reasons or what they can do next.
Executive Summary
The CGC found that:
- Insurers often ask for personal information, such as relationship or employment status, without clearly explaining why it is needed or how it affects the outcome.
- When insurers decide not to offer cover online, the messages provided are frequently vague, unhelpful, or lack guidance on next steps.
- Some underwriting practices, such as excluding applicants based on past bankruptcy or a lack of prior insurance, may unfairly penalise otherwise low-risk customers.
- Most insurers are meeting their Code obligations relating to declined applications, with some demonstrating best practice by including tailored explanations and clear guidance for declined applicants.
- Greater transparency, fairness, and relevance in data collection and decision-making will help insurers meet their obligations under the Code and improve the customer experience.
Insurers do not always explain the relevance of their questions clearly to customers
The Code obligations: When an insurer is unable or unwilling to explain the relevance of a question, it breaches its commitments to transparency and fairness in the Code (Paragraph 21). This also means the CGC cannot be satisfied the insurer is meeting its obligation to only ask for and rely on relevant information (Paragraph 45).
Authors Note:failure to explain the relevance of a question, may impact the insurer’s reliance on an insured’s failure to meet their duty to take reasonable care not to make a rmisrepresentation.
What the CGC found:
CGC reviewed the online motor insurance application forms of 13 insurers. For six of these insurers, CGC had no concerns with the relevance of the questions they asked.
However, for the remaining seven, CGC identified several types of questions where the relevance to the decision to provide motor insurance was not made clear to customers.
These included questions about:
- Relationship status
- Employment status and occupation
- Ownership of other vehicles.
The CGC noted – [w]here possible, insurers should request information directly, rather than making inferences or assumptions based on indirect questions.
By asking specific and direct questions, insurers treat customers more fairly, based on their individual circumstances, and are more transparent about why the information is being requested
The burden is on insurers to show that each question asked serves a specific and justifiable purpose linked to underwriting or eligibility. Generalised or speculative reasoning is not sufficient.
Insurers should demonstrate compliance through clear, customer-facing disclosures and strong internal processes.
Authors note: asking vague or indirect underwriting questions may lead to a breach of the AFSL general obligation to provide financial services efficiently, honestly and fairly. (refer section 912A(1)(a) Corporations Act)
The CGC noted the Good Practice of five insurers who explained on their websites why they collect the information they do and how they use it to calculate premiums.
Insurers are not consistently meeting obligations when refusing to offer insurance
The Code obligation – the Code requires an insurer to clearly explain its decision to the customer if it is unable to provide insurance, and to advise them of their right to request the information the insurer relied on to make the decision (Paragraph 47).
What the CGC found:
Of the 13 insurers the CGC reviewed, eight met all four requirements of Paragraph 47 in the Code. Five insurers did not fully meet one or more requirements.
The most common shortfall was the use of vague refusal messages. These did not provide the reasons for the decision that were specific to the customer and the information they provided.
Insurer responses also included incomplete explanations of customer rights, and limited information about what customers could do next, especially when ineligibility applied only to the online application process.
What CGC expects:
When insurers are unable to offer cover at the application stage, CGC expects them to explain why.
CGC expects that every insurer will do so clearly, specifically, and in a way that relates to the customer’s circumstances.
Vague references to “underwriting guidelines” or “eligibility criteria” are not enough.
If cover is unavailable online but may still be available through another channel, such as over the phone, CGC expects insurers to make this explicit to customers to avoid their confusion or discouragement.
CGC expects the communications for refusals to inform customers of their right to request the information the insurer used in the decision and to provide options for seeking cover elsewhere.
CGC encourage including information about the complaints processes for customers – even in situations where it is not strictly required – as good practice that supports transparency and trust.
Authors note: Under RG 271 Insurers (and Underwriting Agencies holding an AFS Licence) must ensure that their IDR process is Visible and Accessible. (refer RG 271.132 – RG 271.140).
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