What does ‘treat fairly’ mean in new conduct law?
Russell Hutchinson is a fan of being treated fairly, and thinks we should, of course, treat customers fairly. But how might the fair conduct requirement work in practice?
Monday, August 17th 2020, 6:19AM 
1 Comment
There is a fair conduct principle in the draft new conduct law.
The challenge is that this is principles-based law, and fairness is not defined. Each company, if they were operating under the draft law, would have to define a conduct programme – without a requirement for a standard set of principles we are immediately setting ourselves up to have a different definition of fair conduct from each product provider.
Sure, these must each be approved by the FMA who will issue conduct licences under the law, but they will not be the sole arbiters of what is considered fair, because these are not regulations – this is law.
Fairness, undefined, could mean different things to different people.
The first risk is that providers treat the concept differently – some more loosely than others. I’m all for healthy competition – it helps to keep prices down and innovation coming along – but competition in minimum standards could be scary.
What if one company decides fairness is at one level while another sets the bar higher? Lower costs at one could confer a substantial advantage, penalising the fairer player. It may take years before this difference is challenged.
Individuals could take the standard to apply in different ways.
Several people I know that have reviewed the draft law believe that it envisages an individual approach to fairness. That presents a challenge to insurers that have to deal with groups of people pooling risks.
Products are designed to be fair to the group, on average, not to each specific individual. We already see this when consumer advocates complain that one policyholder did not get their money back after having paid into an insurance contract for years – their premiums, of course, helped to pay for claims to other people.
It was the pooling of risks that made it possible for all of the policyholders to take larger financial risks than they would be capable of on their own. But it could be challenged as ‘unfair’ by some advocates.
Insurance underwriting is frequently challenged as ‘unfair’ because higher risks attract higher prices.
Some risks cannot be taken – they are more of a certainty, usually, a certain loss. Again, advocates for some groups that are not insurable, regularly call for them to be insured – even though this may make products non-viable for the majority of consumers.
These are extreme examples, of course. They are not reasons for abandoning conduct law – but for providing more clear guidance on what is fair.
These are principles such as honesty, clarity, and protection for the vulnerable. They are still principles, not prescriptions, but I think they are more easily understood.
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In principle, if a client says the two appointments were rushed and they didn't fully understand, then ... the appointments were rushed and you're in breach of the code standards.
If you followed prescribed requirements - a three appointment process, file notes and an 80 page written report (with executive summary) that you left with the client for 10 days to read before implementing - you aren't. Unfortunately, the first is what the client claimed, the second is what I actually did and the outcome was a breach of a code standard by me. The client lost nothing and no harm was done - but the claim was made.
It gets even more concerning when we understand that FADC salaries are paid by the FMA. So, if the FMA has spent a fortune investigating you only to come up with nothing they will get their conviction.