History

There has been a series of Government reviews of the commercial relationship between motor insurers and smash repairers since the mid 1990s. In 1995, the Industry Commission conducted an inquiry into the Vehicle and Recreational Marine Craft Repair and Insurance Industries.

In 2002, the Australian Competition and Consumer Commission (ACCC) convened a series of roundtable discussions with representatives of insurers, repairers and consumers, releasing an Issues Paper in 2003 outlining its findings and recommendations.

Finally, in August 2004 the Treasurer, the Hon. Peter Costello MP, provided a reference to the Productivity Commission to examine the relationship between the Australian motor vehicle smash repair industry and the motor vehicle insurance industry, with the Commission releasing its final report in March 2005.

The Productivity Commission's final report supported the conclusions of previous inquiries, calling for the establishment of a voluntary Code of Conduct to govern aspects of the relationship between repairers and insurers and their dealings with each other.

The Australian Government supported most of the Commission's recommendations, and established a taskforce of key motor insurers and repairer representative bodies with an independent Chairperson and a Secretariat based in the Office of Small Business. The taskforce was charged with developing the voluntary industry Code of Conduct. The Government's formal response to the Productivity Commission's recommendations guided the taskforce in its work and a copy of this response appears as Annex 1 to the Code and the Terms of Reference at Annex 2 of the Code.

Following the Taskforce's agreement on the terms of the Code, the Hon. Fran Bailey, Minister for Small Business and Tourism, officially launched the Motor Vehicle Insurance and the Repair Industry Code of Conduct on 29 June 2006.

Recomendation 6.1
The Australian Government should facilitate and promote the development and implementation of an industry-wide code of conduct in respect of the relationship between insurers and repairers as soon as practicable.

The Government considers that properly formulated codes of conduct that enjoy the support of industry are of benefit to all industry participants. Accordingly, the Government agreed to work with industry to develop a voluntary Code along the lines outlined in the PC, report based on most of the findings of the PC report.

Recomendation 6.2
The industry-wide code of conduct should include:

a.) Matters relating to preferred smash repairer (PSR) arrangements, including requirements to:

  • notify opportunities to apply for PSR status;
  • disclose selection criteria;
  • provide a 'cooling off' period for repairers to consider PSR contract offers;
  • provide that PSR tenure should not automatically cease on transfer of business provided probity and prudential concerns are met; and -
  • specify that if an hourly rate is included in a PSR contract then it should be a mutually agreed realistic rate.

b.) Matters relating to quoting for work and payment, specifying:

  • that times and rates, where used, should be realistic times and rates agreed to by insurer and repairer;
  • that paint, parts and significant consumables should be separately costed rather than included in hourly rates;
  • where competitive quotes are sought, that the quotation process should be fair and transparent;
  • that insurers should fully disclose their terms of payment to repairers; and - minimum terms of payment where work is not in dispute (for example, 30 days or less).

c.) Matters relating to quality and safety, and guarantees, including requirements:

  • that where an insurer specifies the repair method and/or the quality of parts to be used, the insurer accepts responsibility in writing for the quality and safety consequences of its specifications;and
  • to restrict the guarantee liability of a repairer to work it actually carries out, and then only for an agreed reasonable period - a repairer should not be required to guarantee parts or paint for a period longer than the manufacturer's warranty.

d.) Matters relating to consumer choice, including requirements for insurers:

  • to clearly explain repairer choice options to consumers when taking out policies and making claims;
  • to avoid making misleading, inaccurate or unjustified comments about the quality and timeliness of repair of non-preferred repairers; and
  • to clearly explain to consumers their policy provisions relating to the use of parts and to guarantees.

e.) A transparent and independent external dispute resolution mechanism.

The Government acknowledged the importance of transparency in the market. Many of the problems identified in the PC report stem from a lack of clarity in business relationships between insurance companies and smash repair businesses.

The Government agrees that it would be desirable for an industry code to include all of the above measures. However, the Government recognises the complexities of moving to a new system of quoting. Further to this, the Government recognises that approximately seventy per cent of the motor vehicle insurance market either do not use, or are moving away from, the funny time, funny money (FTFM) method of quoting. Accordingly, the Government recommends that an industry code include provisions to require insurers to state clearly in contractual arrangements whether FTFM is to be the applied quoting methodology.

The Government accepted the PC's recommendation that consumer choice should not be mandated. However, in the interests of ensuring consumers are informed of provisions in relation to consumer choice of repairer, the Government recommends that an additional provision be inserted in the code to the effect that: . Insurers should clearly state, upfront in product disclosure documents, repairer choice options.

The Government also supports the view that a transparent and independent external dispute resolution mechanism should be established to deal with issues of a contractual nature and breaches of the code. The dispute resolution system should be based on mediation with the costs being shared by the parties.

Recomendation 6.3

The Code should not attempt to specify or regulate, on an industry-wide basis, matters such as:

  • minimum hourly rates or prices;
  • 'standard' hours for repair jobs;
  • types of parts to be used; -
  • industry-wide PSR selection criteria and/or weightings for PSR criteria;
  • compulsory choice of repairer; -
  • requirements to spread work among repairers; and -
  • particular conditions of guarantees.

The Government agreed that the Code should not attempt to specify or regulate the matters listed in recommendation 6.3.


Recomendation 6.4

If voluntary agreement cannot be achieved between insurers and repairers - that is, between at least the four major insurers and the national body representing repairers (the Motor Trades Association of Australia) - within a period of six months from release of the Government's decision on this report, the Australian Government should develop a code of conduct in accordance with the above findings and recommendations, and the code should be mandated under the Trade Practices Act.

The Government agreed in principle with recommendation 6.4. The Government agrees that there is justification for the development of an industry code of conduct as a cost effective way to improve the relationship between insurers and repairers. However, the Government is committed to industry self-regulation to address marketplace problems as an alternative to regulation.

Therefore, in the first instance, the Government considers that all voluntary approaches should be explored prior to imposing a mandatory industry-wide code of conduct on the parties. However, should all voluntary approaches fail, the Government will examine further regulatory options, including the prescription of an industry code under the Trade Practices Act 1974 (TPA).