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From Principle to Practice: Governing AI in General Insurance

Artificial intelligence is already being used across general insurance, from underwriting and pricing to claims and complaints triage, fraud detection, vulnerability identification, data analysis and customer communications. The governance challenge is not simply whether an AI system works. It is whether the system produces appropriate, defensible and consistent outcomes throughout its lifecycle. Four principles provide a practical foundation: Fairness, Adaptability, Explainability and Reliability. 1. Fairness Fairness means that any of the outputs generated by AI should be equitable and free from bias. It should not discriminate against any communities, groups, or individuals. Fairness can sometimes be a trade-off between procedural fairness (ensuring the system or process treats all people the same) and representational fairness (ensuring inequalities in the real world or past data, e.g. gender bias, aren’t perpetuated). [AI Fluency for directors, The University of Sydney, Sydney Executive Plus+ 2026) In general insurance, this is particularly relevant where AI is used for: risk selection, pricing or policy renewal; claims triage and fraud detection; identifying potentially vulnerable customers; prioritising complaints; or recommending whether a claim should be accepted (in full or in part), investigated or declined. Fairness does not necessarily mean treating every customer identically. Insurance legitimately differentiates between the type of consumer and general insurance product. The question is whether the differentiation is supported by relevant information, is legally permissible and does not operate as an inappropriate proxy for a vulnerability factor. Controls should include testing datasets for bias, comparing outcomes across customer cohorts, reviewing false-positive and false-negative rates, and requiring human review before an adverse or high-impact decision is made. 2. Adaptability Adaptability in an AI system refers to the ability to adjust to new information that falls outside its training data. A machine learning system that has learned to identify patterns in training data can be extremely efficient at predicting those patterns in the future. But they often struggle to cope with disruption and change, when the world changes and no longer matches its training data. (ibid, AI Fluency for directors) Adaptability requires: monitoring for model drift and unexpected changes in outcomes; reassessment when the model, data, intended use or regulatory (or Code) environment changes; defined triggers for escalation, suspension or human intervention; change-management controls over vendor and internal updates; and a process for retiring AI systems that are no longer suitable. Governance should therefore continue after implementation. Approval at the commencement of an AI project is not enough. 3. Explainability AI should be transparent and explainable. Transparency is about how much of your system’s inner workings you can understand. Explainability means how and why certain decisions are made can be understood by the people who interact with the AI, be they employees or customers. (ibid, AI Fluency for directors) This is critical where AI contributes to: premium or policy coverage decisions; the identification of suspected fraud; claim delays, part settlements or denials; complaint outcomes; or customer facing advice or communications. Explainability does not require every employee to understand the technical construction of a model. It does require […]
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What is the value of compliance and contrition in financial services?

The Federal Court today imposed penalties of $35 million against Harvey Norman Holdings Ltd and $20 million against Latitude Finance Australia for misleading conduct and false or misleading representations they made in a national advertising campaign promoting a 60-month interest free and no deposit payment method for goods purchased at Harvey Norman stores. The...
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From good faith to fairness – the regulatory evolution of claims handling in Australia

Introduction: why “fairness” has become the organising idea in claims Claims handling is where the insurance promise is either delivered or denied. In Australia, expectations about claims conduct have historically been anchored in the duty of utmost good faith implied into insurance contracts and expressed in s 13 of the Insurance Contracts Act 1984 (Cth) (ICA). That duty remains central to modern disputes, but it is no longer the sole regulatory “north star”. Since claims handling and settling was brought within the definition of a financial service from 1 January 2022, claims conduct has been reframed through the AFSL regime and, in particular, the obligation to provide financial services “efficiently, honestly and fairly” (EHF) under s 912 A(1)(a) of the Corporations Act 2001 (Cth). That obligation is now complemented, and in many respects operationalised, by the GI Code of Practice (GI Code), which has steadily moved from principle to process, and is now being redrafted again to further elevate claims standards, vulnerability supports and governance. This article traces that evolution: from good faith, to fairness, to the “fairness-by-design” direction signalled by the Draft GI Code. 1. Utmost good faith: the original claims-handling guardrail 1.1 The duty as an implied condition of the insurance bargain The duty of utmost good faith in ICA s 13 is often described as a key statutory expression of a long-standing insurance norm. In modern authority, the High Court has emphasised that s 13 is not a free‑standing general duty, but is to be understood in a way that aligns with the duty’s operation as an implied contractual conditiongoverning the manner in which rights, powers and obligations are exercised “under or in relation to” the contract. That framing matters in claims because the “pressure points” in claims, information requests, investigations, repair pathways, reserving rights, reliance on remedies for non-disclosure or misrepresentation, partial admissions and settlement strategy, are all exercises of contractual or statutory rights in connection with the contract. 1.2 What good faith has come to mean in claims conduct (and what it does not) Although the duty is contextual and case-specific, judicial discussion and regulatory pleadings have repeatedly linked utmost good faith to commercial standards of decency and fairness, due regard to the insured’s interests, and conduct that is not merely “not dishonest” but also not oppressive, capricious or unfair in its practical operation. At the same time, a persistent theme in modern commentary is that utmost good faith is not fiduciary and does not demand “unnatural altruism”; it is compatible with insurers legitimately protecting their own interests within the contract and the statute, provided that protection is pursued consistently with the duty’s constraints. The High Court’s decision in Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2022] HCA 38 illustrates the point. The case arose from claims and settlement communications following cyclone damage, complicated by non‑disclosure of pre-existing defects and a dispute about the scope/sequence of works and allocation of costs. The High Court ultimately held that the insurer’s conduct (including reliance […]
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A summary of the Draft 2027 Insurance Brokers Code of Practice – my observations

NIBA has today opened the final draft of its rewritten Insurance Brokers Code of Practice for public consultation. Consultation closes on Friday, 7 August 2026. Key takeaways The Draft 2027 Insurance Brokers Code of Practice (2027 Code) is a sound industry Code with the following improvements over the current Code: The 2027 Code: AFSL – has strengthened the connection with brokers AFSL obligations; conflicts of interest – codified ASIC’s RG 181 Conflicts of Interests and provided a structured mechanism to manage conflicts; strata insurance – requires documented management of conflicts of interest, remuneration disclosure for all strata insurance, and identifies the owners corporation as the client not the strata manager remuneration – required for Retail Clients at quotation $ or % or both) and invoicing ($) and disclosure to all clients (retail and wholesale) when requested vulnerability – requires a structured documented approach including staff training and working with insurers reporting – codifies requirement to keep, produce and retain records IBCCC – strengthened enforcement and sanction powers review – every 5 years My observations of each Section Section 1 – About this Code the 2027 Code connects the Code to AFS Licences. This will provide stronger enforcement powers to IBCCC however requires some caution as the 2027 Code is directed at operational transactions and conduct while the s912A(1) AFSL general obligations are positioned at a more elevated level focusing on systems and procedures rather than isolated conduct. Section 2 – how the Code works the 2027 Code recognises the time to implement material system changes and provides for a 2 to 18 month system-change runway (in particular Section 7.1(a)(ii), which extends commission disclosure to strata insurance). the 2027 Code expressly applies to interactions and dealings with prospective clients. the 2027 Code has 2 tiers – Code Principles (section 3) and Obligations (sections 4-14). Where an obligation in the Code does not expressly cover a situation, the Code Principles guide how a Code Subscriber should act. Section 3 – Code Principles and our commitments the Code Principles apply to a wide range of interactions other than client interactions including prospective clients, other brokers (whether NIBA members or not), insurers, assessors, loss adjusters, and experts, IBCCC, NIBA, AFCA and regulators. the Principles include professional commitment (training & competency), ethical behaviour, transparency and accountability the Code extends to employees and authorised representatives of the NIBA member Section 4 – Engagement and terms greater disclosure obligations apply before acting for a prospective client and an overarching requirement to do everything we reasonably can to give our clients clear information so they understand the services we are providing. Section 5 – Communications, behaviour, and who we act for the 2027 Code effectively negates general advice other than when provided in generic advertising materials. When providing advice, we must give our clients the information they need to understand the advice, including the costs, key risks and benefits of any products we recommend, and any other matters required by law. It’s difficult to see how the above […]
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Are you considering starting an Underwriting Agency in Australia? Here’s what you need to know

I have numerous conversations with people in Australia, UK and USA looking to start an Underwriting Agency in Australia and seeking to understand what’s involved from a regulatory perspective. Typically the clients in UK and USA are managing existing MGA’s across UK, Europe and USA. Australian clients are typically people who have worked at an insurer, broker, other underwriting agency or are currently managing an agency that is an AR of an insurer. Based on my experience, here are my top practical tips: 1. Understand the time frame It’s easy to feel a little overwhelmed by the task ahead however, rest assured, it’s a well-worn path although a sound plan is critical. Assuming you have landed on your insurance product offering and services (such as claims handling), some of the things you need to consider: as an underwriting agency you need to operate under a binder with an APRA regulated insurer. This can either be a general insurer (Australian based) or Lloyds underwriter. It’s important to have the binder discussions advanced as a draft copy of the binder (including the schedule(s) but unsigned) needs to be submitted as part of your AFSL application (see point 2). Binder discussions will also include claims management and complaint management. if you will be using Lloyd’s capacity you need to consider the time-frame for becoming a Lloyd’s coverholder. This requires engaging a sponsoring Lloyd’s broker and/or managing agent and Lloyd’s Australia. if the company (and including the ultimate parent) who controls the Australian licensee is based overseas with overseas domiciled directors you need to account for the time to obtain fit and proper checks from those jurisdictions the time to obtain an AFS Licence; and setting up your business including registration, systems, people and a myriad of other tasks and activities 2. Do you need an AFSL? An Underwriting Agency generally is required to hold an AFS Licence for general insurance products with financial product advice, dealing, and claims handling (if agreed by the insurer) authorisation. You do not need to hold an AFSL if you are an authorised representative of a suitably authorised licensee or can rely on an exemption. If you are intending to provide financial services to Wholesale clients only, there is an exemption for APRA regulated insurers and Lloyds underwriters. However, this creates practical issues in dealings with insurance brokers plus most Agencies prefer the governance that a Licence affords. 3. Setting up a business in Australia There are the usual steps involved in setting up a business in Australia, including: choosing the company type and shareholder/ownership structure registering the company with ASIC apply for an ABN and register Business name(s) RG 121 is an ASIC guide is for people or companies from overseas who propose to conduct a financial services business in Australia. 4. What are the people requirements for AFS licensing? The main requirements are: the fit and proper requirement – ASIC must ensure that your key people meet the requirements of the fit and proper test. This […]
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The Hidden Risks of Letters of Appointment for Brokers

A recent case in the NSW Supreme Court has highlighted the hidden risks, and care required, by brokers using letters of appointment Sphere Healthcare Pty Ltd v Allianz Australia Insurance Ltd [2026] NSWSC 579 The case involved a breach of the duty of disclosure for failing to disclose the storage of bulk ethanol that exceeded the capacity of the dangerous goods area and was placed next to the factory. The factory was destroyed in a fire and the insurer successfully denied indemnity. The insured manufactured health care products and infant formula however, as a result of the COVID-19 pandemic, the insured decided to make hand sanitiser and sought cover under an ISR policy. However, during the period that the insured was trying to source ethanol (to use in the production of hand sanitiser), the insured changed brokers. My focus for the purposes of this article is the circumstances of the appointment of the broker. The circumstances In parallel with the sourcing of a large quantity of ethanol, the Group (who had recently acquired the insured), was working with three insurance brokers to source insurance for the group. The Group wanted to keep the ISR policy which the holding broker had arranged. The new broker asked the insurer to transfer the ISR policy, while the holding broker asked the insurer to cancel it. After some confusion caused by the fact that the new broker’s letter of appointment was back-dated, the insurer issued a new policy schedule and wording but for the same premium. [4] The appointment of the holding broker 4 months prior to the fire and following a tender process, the insured provided the holding broker with a letter of appointment [76]. The Court highlighted the insured’s discussions to change brokers; notwithstanding the letter of appointment, the Group was continuing to seek cheaper insurance through the new broker. The insured emailed the new broker, pressing for the best price, “Please try any good strategies to get us a good package deal”. The insured proposed to “fully follow” some policies arranged by the holding broker, including for the relevant site, and then use the new broker to arrange other policies, “This way, the total cost is still much lower than the current [holding broker] pricing.” But the policies arranged by the new broker “cannot be backdated”. Nor did they want to pay “broker fees twice”. It was decided to appoint the new broker on receiving confirmation that the policies arranged by the holding broker “will remain unchanged after [the new broker] takes over, and we won’t be double charged.” [127] Back-dating the letter of appointment for the new broker In order … to take over some of the policies”, the new broker recommended that its appointment be backdated to 29 February 2020. The insured was asked to photocopy a letter onto the Group’s letterhead and to sign and return the document that day. In respect of the policy for the relevant site, the new broker noted “to take over, premium amended”. […]
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The ecosystem of Insurance as a fairness mechanism

Over the past few days I’ve been involved in a number of fascinating discussions with insurance leaders from claims, product and pricing and repairers, loss assessors, brokers and experts (engineers etc). The conversation has always led to the role of fairness in insurance. This concept is underpinned by a legal and code structure that requires services and products to be provided efficiently, honestly, fairly, transparently and timely, acting with the utmost good faith. I have been thinking through a framework that operates as an insurance ecosystem providing procedural fairness delivering fair outcomes. This does not mean pay every claim. Far from it, but an adverse decision would be arrived at efficiently and be part of a robust decision-making process where the insured was an intrinsic part of the process. I welcome your thoughts on the components of an ecosystem that operates as a fairness mechanism. I’ve provided some of my initial thinking to promote the conversation: everyone involved in the ecosystem is focused on fairness through conduct, behaviors and compliance with laws and codes; Insurers design and act within fair frameworks and systems. Such as triaging claims and complaints at lodgement so that complexity and vulnerability characteristics are identified early and specialist resources allocated before problems arise; consumer advocates, brokers and claimant intermediaries act as the voice of the customer however the system acts as a customer advocate when the customer is unrepresented; the system starts with a proposition that: the claim is covered unless the evidence shows otherwise; the complaint is valid until the evidence shows otherwise – with short time frames for the evidence to show otherwise; the use of AI to streamline decision-making and ensure that the right people with the appropriate levels of skills, knowledge and authority are involved at an early stage where the policy/claim is not atypical (such as the early indicators of characteristics or complexity and vulnerability); frontline staff act as the guardians of the system and provided with the training, systems and tools to, for example; (1) resolve complaints at first point of contact, (2) identify complexity and vulnerability; and (3) challenge an experts report that they don’t understand so that a defective report doesn’t become part of the ecosystem; the time from ‘IDR-EDR-Determination’, is reduced from months or years to weeks; expert reports are truly independent and factual that anyone in the system can rely on in good faith as the basis for conversation or settlement; product design and distribution flows through marketing – product design and pricing – sales – underwriting – claims; distribution processes align product design to customer needs, objectives and requirements while enabling freedom of choice; unconscious bias is removed from the system; remuneration is merely an output of the value that a person contributes to the system and the system manages inherent conflicts the system ensures that relevant resources are allocated to the complex, the vulnerable, the difficult; the system includes controls that manages, regulates, or directs the behavior of people, processes, or systems to achieve […]
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What does it mean to carry on an insurance business in Australia?

In order to determine whether you need to be: authorised by APRA to carry on a general insurance business in Australia (Part III Division 1 Insurance Act 1973)and/or hold an Australian Financial Services Licence (AFSL) to provide financial services in Australia (such services include general insurance) (Section 911A Corporations Act) its necessary to consider whether you are carrying on an insurance business in Australia. Sources: Sutton on Insurance Law, Enright, Merkin, Hawke, Lawbook Co 2025 and ASIC Regulatory Guide RG 121 Carrying on Business The concept of ‘carrying on a business’ has been interpreted by the Courts and is also affected by section 21 Corporations Act. It should be noted that carrying on a business in Australia depends on the factual circumstances. However generally: include the degree to which a body corporate’s activities in Australia are conducted with system, repetition and continuity; the relevant activity need not generate or be motivated by profit; the business may be a carried on as part of or in conjunction with any other business; and it may be carried on alone or in conjunction with others. In Australia Section 21 provides that a body corporate has a place of business in Australia if the body corporate: establishes or is using a share transfer office or share registration office in Australia; or is administering, managing, or otherwise dealing with, property situated in Australia as an agent, legal personal representative or trustee, whether by employees or agents or otherwise. Section 21(3) provides a number of factors that in and of themselves do not indicate that a body corporate carries on a business in Australia. If you: a) are or become a party to a proceeding or effect settlement of a proceeding or of a claim or dispute; (b) hold meetings of your directors or shareholders or carry on other activities concerning your internal affairs; (c) maintain a bank account; (d) effect a sale through an independent contractor; (e) create evidence of a debt or create a charge on property; (f) secure or collect any of your debts or enforce your rights in regard to any securities relating to such debts; (g) conduct an isolated transaction that is completed within 31 days, not being one of a number of similar transactions repeated from time to time; or (h) invest any of your funds or hold any property Inducing If you engage in conduct that is ‘intended to induce people’ in Australia (or you engage in conduct that is likely to induce people in Australia) to use financial services you provide, then you will need to hold an AFS licence, unless an exemption applies. This is because of the deeming provision in s911D, which says that such conduct is ‘taken to be’ carrying on a financial services business in Australia. ASIC have granted specific exemptions that may apply: see ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 for ‘inducing’ wholesale clients, which applies until 31 March 2027. (refer RG 121.50) ASIC provides the following example in Table […]
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Insurance brokers as an Authorised Representative – how are you managing contagion risk?

I’m often asked by insurance brokers, who are authorised representatives of a licensee, whether they should hold for their own AFS licence. I talk them through the mechanics of obtaining an AFS Licence, the cost (plus ongoing costs) of applying for a licence and how I can support them with their AFSL application. However, such a question requires an initial analysis of the risks, costs and benefits of holding your own AFS Licence compared to being an authorised representative of another licensee. With the increased regulatory scrutiny by ASIC over AR networks there is a strong case for obtaining your own licence. This scrutiny will, most likely, continue to increase. What is contagion risk? Contagion risk, in context of an AR network, is the likelihood that an adverse event, such as a cybersecurity failure or misconduct of one or more authorised representatives, impacts the entire AR network for that Licensee. This impact includes the impact to all other authorised representatives within the network and the licensee. A recent Federal court case highlighted contagion risk: Australian Securities and Investments Commission v RI Advice Group Pty Ltd [2022] FCA 496 (see ASIC media release (22-104MR)). RI Advice The Federal Court found AFS licensee, RI Advice, breached its license obligations to act efficiently and fairly when it failed to have adequate risk management systems to manage its cybersecurity risks. The finding comes after a significant number of cyber incidents occurred at authorised representatives of RI Advice between June 2014 and May 2020. In one of the incidents, an unknown malicious agent obtained, through a brute force attack, unauthorised access to an authorised representative’s file server from December 2017 to April 2018 before being detected, resulting in the potential compromise of confidential and sensitive personal information of several thousand clients and other persons. In addition to the declaration of contravention, the Court ordered RI Advice to engage a cybersecurity expert to identify and implement what, if any, further measures are necessary to adequately manage cybersecurity risks across RI Advice’s authorised representative network. RI Advice was ordered to pay $750,000 towards ASIC’s costs. Increased regulatory scrutiny leading to enhanced monitoring and supervision A number of insurance broker Licensee’s are having to report ‘reportable situations’ to ASIC, due to the conduct of authorised representatives. The reporting of reportable situations to ASIC, profile cases such as RI Advice, existing regulatory obligations and responsibility for the conduct of authorised representatives under Part 8.1 of the Insurance Brokers Code of Practice, will continue the enhanced regulatory focus of ASIC in respect of the operation and management of AR networks. Licensees are responding through rigourous due diligence processes as part of the AR appointment process and robust AR Monitoring Programs. I have worked with a number of licensed Insurance Brokers to set-up robust AR Monitoring Programs and due diligence. Licenced or AR? Costs and benefits – a compliance perspective From a risk and compliance persepective there is a benefit for a new brokerage to be an authorised representative of a […]
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