tag:theconversation.com,2011:/au/topics/underwriting-50114/articlesUnderwriting – The Conversation2021-03-17T18:56:46Ztag:theconversation.com,2011:article/1570572021-03-17T18:56:46Z2021-03-17T18:56:46ZFederal Court rules insurance companies have to behave decently. That’s a big deal<figure><img src="https://images.theconversation.com/files/389711/original/file-20210315-21-jspegn.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2400%2C1695&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>It almost reads like a John Grisham novel. </p>
<p>Self-employed woman contracts cancer. Claims under her income-protection insurance policy. Insurer cancels the policy after investigation reveals omission of unrelated health condition (depression) on her original application. She is accused of acting in bad faith and threatened with having to repay the money (A$24,000) already received. Her story comes to national attention. A dramatic court battle ensues. Justice is finally served.</p>
<p>Last week just such a narrative concluded in the Federal Court, when chief justice <a href="https://www.fedcourt.gov.au/about/judges/current-judges-appointment/current-judges/allsop-cj">James Allsop</a> found TAL Life, one of Australia’s biggest life insurers, had breached its duty to act with “<a href="https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-042mr-court-finds-that-tal-life-limited-breached-its-duty-of-utmost-good-faith-royal-commission-referral/">utmost good faith</a>” by cancelling a sick woman’s income-protection policy through the questionable practice of “retrospective underwriting”. </p>
<p>The Federal Court case was initiated by the Australian Securities and Investments Commission in December 2019. This followed evidence from the banking royal commission in 2018 showing the lengths TAL went to in seeking to void insurance policies. </p>
<p>Justice Allsop ruled TAL’s actions – including not informing the claimant she was under investigation, reaching a wrong conclusion, failing to give her a chance to respond, and threatening to pursue her for money – lacked “<a href="https://www.insurancenews.com.au/life-insurance/court-rules-tal-breached-duty-of-utmost-good-faith-in-handling-ip-claim">decency and fairness</a>”.</p>
<p>However, he did not agree with the corporate regulator that TAL’s actions amounted to false or misleading conduct. Guilt on that charge would have meant a fine. </p>
<p>The ruling carries no financial penalty, apart from TAL having to keep its end of the contract. The judgment is nonetheless significant. It puts insurance companies on notice about the use of retrospective underwriting, scrutinising insurance applications only when a claim is made, and covertly trawling through applicants’ medical and financial records to find any excuse to void the policy.</p>
<h2>What is underwriting</h2>
<p>Let’s briefly recap what insurance underwriting means. </p>
<p>It is the process of assessing an applicant’s risk and pricing a life insurance policy (which includes a policy such as income protection) accordingly. </p>
<p>If you have, for example, a history of hypertension, you have a higher risk of stroke. This is something an underwriter wants to know, to accurately assess your actuarial risk. They may increase the premium you pay, or exclude from the policy claims for strokes, or decline cover altogether.</p>
<p>Insurance application forms typically require you to declare “yes” or “no” to a list of the most common medical conditions or circumstances, with an open-ended question about other “relevant” conditions. </p>
<p>Usually the underwriting process is straightforward. Insurers accept declarations in good faith, and approve applications (and collect the premiums) as quickly as possible. </p>
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<img alt="Rubber-stamping documents does not happen literally, of course, but it is a powerful visual metaphor for the process of approving an application with insufficient due diligence." src="https://images.theconversation.com/files/390048/original/file-20210317-23-l72c5s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/390048/original/file-20210317-23-l72c5s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/390048/original/file-20210317-23-l72c5s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/390048/original/file-20210317-23-l72c5s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/390048/original/file-20210317-23-l72c5s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/390048/original/file-20210317-23-l72c5s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/390048/original/file-20210317-23-l72c5s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Rubber-stamping documents does not happen literally, of course, but it is a powerful visual metaphor for the process of approving an application with insufficient due diligence.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<h2>Retrospective underwriting</h2>
<p>But that changes when you make a claim.</p>
<p>Then insurers are unwilling to accept anything in good faith. They typically require you to authorise access to your financial and medical records, including records you may not have seen – such as your doctor’s notes. </p>
<p>A doctor might note observations about a patient seeming depressed. It’s not an explicit diagnosis. But an insurer may retrospectively consider this undisclosed evidence of “depression”.</p>
<p>Finding “relevant” information not declared in the original application gives the insurer an excuse to “retrospectively underwrite” the policy – determining what policy it would have offered (if at all) had that information been known. </p>
<p>Retrospective underwriting usually favours insurers as it is done with the knowledge of an existing claim. The federal <a href="https://www.legislation.gov.au/Details/C2019C00115">Insurance Contracts Act</a> allows insurers, under certain conditions, to cancel policies within three years of inception due to relevant non-disclosures or misrepresentations in applications.</p>
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Read more:
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<h2>TAL at the royal commission</h2>
<p>Appearing before the banking royal commission in September 2018, TAL senior executive Loraine van Eeden <a href="https://financialservices.royalcommission.gov.au/public-hearings/Documents/transcripts-2018/transcript-14-september-2018.pdf">agreed</a> the company’s approach had lacked empathy. She acknowledged it was wrong to not tell the claimant she was being investigated, and wrong to not give her a chance to respond to the reason for the retrospective underwriting.</p>
<p>TAL had approved the woman’s income protection insurance in October 2013, asking detailed medical questions, including those of mental health. In mid-December she was diagnosed with cervical cancer. She lodged her policy claim on January 3 2014.</p>
<p>TAL accepted the claim on 7 January and made monthly payments until May. In June it cancelled the policy, on the basis her medical records revealed undisclosed mental health issues it said would have changed the initial underwriting. Perhaps, one suspects, not offer cover. TAL did not suggest she was dishonest.</p>
<h2>Practical implications</h2>
<p>In our experiences it is not unusual for insurers to use a claims process to retrospectively underwrite. Often claimants only become aware of this when they’re told there is information giving the insurer the right to cancel the policy. </p>
<p>Under the life insurance industry’s voluntary <a href="https://fsc.org.au/resources/1695-life-insurance-code-of-practice-with-appendix">Code of Practice</a>, insurers are meant to explain why they’re requesting information relevant to a claim.</p>
<p>The corporate regulator and consumer advocates have long held <a href="https://financialservices.royalcommission.gov.au/Submissions/Documents/Round-6-written-submissions/POL.9006.0001.0192.pdf">concerns</a> the three-year window to cancel policies encourages insurers to go on “fishing expeditions”.</p>
<h2>No more spying</h2>
<p>Since January 1 the rules giving insurers three years to cancel a policy have been tightened – one of the <a href="https://www.theguardian.com/australia-news/2021/jan/19/banking-royal-commission-most-recommendations-have-been-abandoned-or-delayed">27 of 76 recommendations</a> from the banking royal commission the federal government has implemented. </p>
<p>Insurers now may only “avoid a contract of life insurance on the basis of non-disclosure or misrepresentation if it can show that it would not have entered into a contract on any terms”.</p>
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Read more:
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<p>The Federal Court ruling puts life insurers on further notice. It clarifies what the “duty of utmost good faith” required by the Insurance Contracts Act means.</p>
<p>They don’t need to behave dishonestly to breach that duty. Not meeting community expectations of decency and fairness is enough. That doesn’t leave much room for lesser signs of excessive suspicion, let alone “deep-dive” operations to dig for dirt. That’s all but been declared illegal.</p><img src="https://counter.theconversation.com/content/157057/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Benjamin Koh was the chief medical officer and whistleblower at Comminsure, the life insurance division of the Commonwealth Bank. He has contributed to the parliamentary inquiries into whistle-blowing protections and life insurance. He has also assisted financial advisors and insureds in claims dispute resolutions and is currently on a short paralegal contract with Maurice Blackburn Lawyers, but not in its insurance division.
This article was cowritten by Liam Hanlon who is a lawyer working in Maurice Blackburn’s superannuation and insurance practice. He acts on behalf of claimants in total and permanent disablement, income protection and general insurance claims and litigation, as well as on behalf of consumers in financial advice disputes.
Liam Hanlon does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article beyond his role at Maurice Blackburn Lawyers. He is a member of the Australian Lawyers Alliance.
</span></em></p>The Federal Court has all but made it illegal for insurance companies to dig for dirt and exploit the practice of retrospective underwriting.Benjamin Koh, Honorary Associate, Faculty of Business, School of Management, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1372522020-04-28T19:51:22Z2020-04-28T19:51:22ZThe government’s UNGI scheme: what it is and why Zali Steggall wants it investigated<p>Independent MP and barrister Zali Steggall recently drew public attention to a federal government <a href="https://www.energy.gov.au/government-priorities/energy-programs/underwriting-new-generation-investments-program">program</a> that supports <a href="https://theconversation.com/the-governments-electricity-shortlist-rightly-features-pumped-hydro-and-wrongly-includes-coal-114503">gas, hydro and coal power</a> projects through underwriting. </p>
<p>Writing to Auditor General Grant Hehir, Steggall <a href="https://www.theguardian.com/australia-news/2020/apr/27/zali-steggall-calls-for-probe-of-coalition-plan-to-underwrite-gas-hydro-and-coal-power">called for an investigation</a> into the “underwriting new generation investment” (UNGI) program, saying it lacks transparency at a time when visibility of public spending is crucial. </p>
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Read more:
<a href="https://theconversation.com/the-governments-electricity-shortlist-rightly-features-pumped-hydro-and-wrongly-includes-coal-114503">The government's electricity shortlist rightly features pumped hydro (and wrongly includes coal)</a>
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<p>“Underwriting” is when a degree of financial risk associated with a project is taken on by the government, rather than the project’s proponent. </p>
<p>Amid an economic crisis and a pressing need to transition to lower-carbon energy, people are understandably interested in where government money is being invested within the energy sector, and on what grounds. </p>
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<p>As we face mounting job losses and <a href="https://www.afr.com/companies/mining/coal-stranded-asset-warning-takes-on-fresh-edge-with-adani-goahead-20181129-h18ifd">stranded assets</a> from the transition away from coal – and from the COVID-19 pandemic – taxpayers have a right to anticipate that the government’s investments will be strategically sound.</p>
<p>But the UNGI program lacks the important detail needed to assure the public that smart decisions are being made.</p>
<h2>UNGI explained</h2>
<p>The UNGI program was introduced in 2018. It followed the collapse of Malcolm Turnbull’s National Energy Guarantee and an Australian Consumer and Competition Commission (ACCC) inquiry, which <a href="https://www.accc.gov.au/system/files/Retail%20Electricity%20Pricing%20Inquiry%E2%80%94Final%20Report%20June%202018_0.pdf">found</a> competition in Australia’s electricity sector needs to be stronger to reduce prices. </p>
<p>The federal government <a href="https://www.energy.gov.au/government-priorities/energy-programs/underwriting-new-generation-investments-program">describes UNGI</a> as “technology neutral”. This means the government’s focus is on supporting “best and lowest cost” energy generation options to get off the ground – whether coal, gas, or renewables. </p>
<p>What’s unclear is the extent to which a costs analysis under UNGI will consider long-term and indirect costs, such as by using <a href="https://pubs.rsc.org/en/content/articlelanding/2017/fd/c7fd00009j#!divAbstract">social costing metrics</a>. </p>
<p>A holistic analysis like this is important in the context of the climate crisis, which could set the Australian economy back more than <a href="https://www.sgsep.com.au/assets/main/Australias_Clean_Economy_MSSI_Issues_Paper12.pdf">A$762 billion in damages by 2050</a>. Only considering short-term and direct costs is a recipe for long-term damage when it comes to energy and the impacts of climate change. </p>
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Read more:
<a href="https://theconversation.com/its-clear-why-coal-struggles-for-finance-and-the-government-cant-change-that-105837">It's clear why coal struggles for finance – and the government can't change that</a>
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<p>Half the projects currently shortlisted for potential support are fossil fuel projects. The other half are renewables-powered pumped hydrogen projects. </p>
<p>But as Steggall has written, the government hasn’t been transparent about how they decide on which projects to underwrite. </p>
<p>These 12 shortlisted projects were chosen without any final guidelines published informing the public on the selection process. Preliminary criteria, identified in the <a href="https://www.energy.gov.au/sites/default/files/Underwriting%20New%20Generation%20Investment%20program%20-%20Registrations%20of%20Interest%20Guidance%20Document.pdf">request for proposals</a>, hasn’t been converted into a decision-making mandate, despite an indication this would happen.</p>
<h2>Does the UNGI program have legal support?</h2>
<p>Steggall’s letter to the Auditor General referenced research by the Australia Institute think tank, which has <a href="https://www.tai.org.au/sites/default/files/P885%20Problems%20with%20UNGI%20%5Bweb%5D.pdf">criticised the UNGI program</a> as having no legal foundation. </p>
<p>The institute published <a href="https://www.tai.org.au/sites/default/files/Underwriting%20New%20Generation%20Investments%20Advice%20%255bWEB%255d.pdf">advice</a> from barristers Fiona McLeod SC and Lindy Barrett, which outlines hypothetical ways UNGI could proceed. These include via an <a href="http://classic.austlii.edu.au/au/legis/cth/consol_act/coaca430/s96.html">agreement with states</a>, existing legislation, or new legislation. They concluded that there was no identifiable support mechanism in place at the time of the advice.</p>
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<p>More than a year later, there hasn’t been any new legislation. And the government has flagged the Clean Energy Finance Corporation’s Grid Reliability Fund as the existing mechanism to support the UNGI program. </p>
<h2>So why might that be a problem?</h2>
<p>There are restrictions on the types of financial instruments this fund can support, as well as on what types of projects. While the Clean Energy Finance Corporation can provide loans, it may not be able to support the types of contracts envisaged by the <a href="https://www.energy.gov.au/sites/default/files/Underwriting%20New%20Generation%20Investment%20program%20-%20Registrations%20of%20Interest%20Guidance%20Document.pdf">early UNGI documents</a>.</p>
<p>As the name suggests, the <em>Clean</em> Energy Finance Corporation could not support a coal project. And yet a coal project has been shortlisted. </p>
<p>The Grattan Institute’s energy program director Tony Wood also expressed concern, saying last year that UNGI appeared “<a href="https://www.theguardian.com/australia-news/2019/aug/29/energy-companies-frustrated-at-slow-progress-on-taxpayer-underwriting-deals">quite different</a>” to what the ACCC inquiry called for: a scheme to <a href="https://www.accc.gov.au/media-release/more-work-needed-to-make-electricity-prices-affordable">provide certainty for debt financing</a> and facilitate new entrants into the wholesale market. </p>
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Read more:
<a href="https://theconversation.com/scott-morrisons-gas-transition-plan-is-a-dangerous-road-to-nowhere-130951">Scott Morrison's gas transition plan is a dangerous road to nowhere</a>
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<p>And the CEFC is <a href="https://www.tai.org.au/sites/default/files/P885%20Problems%20with%20UNGI%20%5Bweb%5D.pdf">apparently not on the same page</a> as the government that has designated its role in supporting the UNGI program, either. Although it <a href="https://www.cefc.com.au/media/files/cefc-welcomes-announcement-of-1-billion-grid-reliability-fund/">welcomed the funding</a>, CEO Ian Learmonth <a href="https://parlinfo.aph.gov.au/parlInfo/download/committees/estimate/49226b7b-2438-49b8-8f8a-94857366c5de/toc_pdf/Environment%20and%20Communications%20Legislation%20Committee_2020_03_02_7594.pdf">noted</a> there was no investment mandate, and the Grid Reliability Fund was separate to UNGI. </p>
<h2>No transparency</h2>
<p>Steggall and the Australia Institute’s main concerns voiced over the past couple of days seem spurred by an unwillingness or inability of the government to provide information around how UNGI is proceeding. </p>
<p>Transcripts from parliament both <a href="https://parlinfo.aph.gov.au/parlInfo/download/committees/estimate/ba6d767d-ef3a-4cb5-8679-103079b0913b/toc_pdf/Environment%20and%20Communications%20Legislation%20Committee_2019_10_21_7278_Official.pdf">last year</a> and <a href="https://parlinfo.aph.gov.au/parlInfo/download/committees/estimate/49226b7b-2438-49b8-8f8a-94857366c5de/toc_pdf/Environment%20and%20Communications%20Legislation%20Committee_2020_03_02_7594.pdf;fileType=application%2Fpdf#search=%22committees/estimate/49226b7b-2438-49b8-8f8a-94857366c5de/0000%22">earlier this month</a> reveal a number of important questions into the program are repeatedly bookmarked. </p>
<p>Still, several of the shortlisted projects, particularly the gas projects, have been promised support. This includes two <a href="https://www.minister.industry.gov.au/ministers/taylor/media-releases/initial-support-terms-two-new-generation-projects-agreed">already the subject of preliminary agreements</a> and one that’s <a href="https://energy.nsw.gov.au/media/2001/download">all but guaranteed</a> funding through an agreement with the NSW government. This suggests the government is ploughing ahead with UNGI despite the lack of clear process or identifiable support mechanism. </p>
<h2>Do we really need to support more gas?</h2>
<p>Energy Minister Angus Taylor has noted growth in gas supply could emerge from <a href="https://www.smh.com.au/politics/federal/gas-revival-key-to-renewables-push-energy-minister-says-20200424-p54n2n.html">natural competitiveness</a> flowed from the effects of COVID-19. </p>
<p>Whether we need to underwrite more gas at this stage is questionable, given the oft-touted role of gas as a transition fuel is <a href="https://theconversation.com/scott-morrisons-gas-transition-plan-is-a-dangerous-road-to-nowhere-130951">not clear-cut</a>. And in any case gas <a href="https://www.climateworksaustralia.org/wp-content/uploads/2020/04/Decarbonisation-Futures-March-2020-full-report-.pdf">will not have long-term viability</a> in a net-zero emissions context. </p>
<p>Post-COVID-19 recovery stimulus must be focused on markets, industries and technologies that need support, but which also, as Steggall puts it, “have a future”.</p>
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Read more:
<a href="https://theconversation.com/5-big-environment-stories-you-probably-missed-while-youve-been-watching-coronavirus-135364">5 big environment stories you probably missed while you've been watching coronavirus</a>
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<p>Yes, competitive pricing is important, as is reliable energy supply. But how that’s achieved must not frustrate the ability to address climate change, or compound current economic concerns by locking in future costs. </p>
<p>At the very least, clearer information about how projects are meeting the “best and lowest cost” criteria, and what financial and legal mechanisms are supporting UNGI as it proceeds, is what we require – and deserve.</p><img src="https://counter.theconversation.com/content/137252/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Laura Schuijers does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As we face mounting job losses, taxpayers have a right to anticipate that the government’s investments will be strategically sound.Laura Schuijers, Research Fellow in Environmental Law, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/916452018-02-21T05:59:26Z2018-02-21T05:59:26ZWhy Australia needs a better system for credit scores<figure><img src="https://images.theconversation.com/files/207221/original/file-20180221-5564-obevw7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Lenders will soon have more data on your accounts and cash flow.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Australia’s credit rating system is failing both borrowers and lenders. Many borrowers are unaware of their own credit scores and <a href="http://sydney.edu.au/business/__data/assets/pdf_file/0004/337459/AGLD-1116-paper_website.pdf">our research shows</a> they have trouble applying for suitable loans. Lenders are also struggling with too little information, causing them to extend loans to those they shouldn’t and restrict loans to worthy borrowers. </p>
<p><a href="https://treasury.gov.au/consultation/c2018-t256276/">Upcoming changes</a> to Australia’s credit reporting system could remedy these issues.</p>
<p>Under the <a href="https://treasury.gov.au/consultation/c2018-t256276/">new credit reporting regime</a>, both lenders and borrowers will have access to more data, such as monthly payment histories on loans and credit cards. This will help consumers understand their own creditworthiness, improve their credit scores and shop around for lower interest rates.</p>
<p>The new data will arm banks and other lenders to make better lending decisions. But it should also level the playing field by giving new entrants more information, helping them to compete with the established lenders. </p>
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Read more:
<a href="https://theconversation.com/forcing-the-banks-to-hand-over-our-credit-history-might-help-with-a-home-loan-but-it-has-risks-86757">Forcing the banks to hand over our credit history might help with a home loan but it has risks</a>
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<p>My <a href="http://sydney.edu.au/business/__data/assets/pdf_file/0004/337459/AGLD-1116-paper_website.pdf">research</a> with Luke Deer examined loan applications to SocietyOne. This is a peer-to-peer lending marketplace that specialises in unsecured personal loans.</p>
<p>Borrowers are only accepted onto the SocietyOne platform if their credit scores can be verified. Substantial “<a href="https://www.investopedia.com/terms/u/underwriting.asp">underwriting</a>” is required to ensure borrowers are of sufficient credit quality. </p>
<p>Underwriting involves evaluating a borrower’s income and cash flow, based on bank statements and other public information. </p>
<p>Despite this labour-intensive and time-consuming process, which requires individuals to submit copies of their documents to third-party lenders, lenders do not receive a complete picture of the potential borrower’s financial situation. </p>
<p>A borrower may report only part of their true financial situation – for example, by sharing information from only one of multiple accounts. Without an accurate picture of creditworthiness, lenders could be extending loans to borrowers that should be rejected, and others might not receive loans they should qualify for. </p>
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Read more:
<a href="https://theconversation.com/business-briefing-what-happens-to-your-credit-history-60247">Business Briefing: what happens to your credit history</a>
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<p>This is where the <a href="https://treasury.gov.au/consultation/c2018-t256276/">new credit reporting regime</a> comes in – there will be much more data. In addition to monthly payment histories, there will be red flags on any missed payments of more than 14 days. The current system only flags missed payments of more than 60 days or bankruptcies only.</p>
<p>Credit reports will include information about current accounts you hold, what accounts have been opened and closed, the date that you paid any default notices, and how well you meet your repayments. </p>
<p>The shift towards comprehensive credit reporting should reduce the time required to underwrite loans and allow loans to be priced more efficiently. This is in part because it will reduce the risk of lending to people who are risky borrowers, and so will <a href="https://www.investopedia.com/terms/a/adverseselection.asp">lower costs</a>. </p>
<p>While this means that borrowers with good credit history will benefit from good behaviour, lower credit quality customers may face higher borrowing costs, or be left searching for alternatives.</p>
<p>But it also opens up more opportunity for borrowers to improve their credit rating by acting on any red flags. </p>
<h2>More innovation ahead in mortgage lending</h2>
<p>Australia has lagged other developed countries in adopting positive credit reporting. Up to this point, the large banks have had a significant informational advantage over new entrants. Because many of us have accounts with the larger banks, they simply had access to information that other lenders don’t.</p>
<p>As well as opening up the market to new borrowers and lenders, the new comprehensive credit reporting regime will also likely lead to the automation of more financial services and the inclusion of more data sources. </p>
<p>For higher-risk borrowers, novel techniques to assess credit risk (such as analysis <a href="http://knowledge.wharton.upenn.edu/article/using-social-media-for-credit-scoring/">of social media</a> accounts) may be the answer to distinguish good borrowers from bad. </p>
<p>This will partially eliminate the need for costly processes in loan underwriting. But prior experience from an <a href="https://academic.oup.com/qje/article/125/1/307/1880343">over-reliance on credit scores</a> in the United States shows that careful assessment of borrowers remains vital. </p>
<p>It could also have the side effect of reducing the prospects of misconduct by either borrower or lender at this stage. </p>
<p>Comprehensive credit reporting should lead to, in aggregate, lower borrowing rates for lower-risk individuals and incentives for higher-risk individuals to improve their position. However, it remains to be seen whether this will lead to a greater degree of exclusion or predatory loans for riskier borrowers.</p><img src="https://counter.theconversation.com/content/91645/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Grant does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia’s credit reporting system is about to be updated, and new research shows it’s past due. The current system simply doesn’t provide either lenders or borrowers with enough information.Andrew Grant, Senior Lecturer, University of SydneyLicensed as Creative Commons – attribution, no derivatives.