The Financial Services Council (FSC) is pleased to launch the life insurance industry’s first-ever industry-led consumer Code of Practice.
The Code is mandatory for FSC members, and is first and foremost for consumers.
It will ensure that insurer practices and obligations are lifted substantially to better meet consumer needs and expectations.
The Code is governed by an independent body which will ensure compliance.
The Code requires insurers to improve disclosure to customers, provide greater transparency in communications, decide claims within set timeframes, limit the use of surveillance, and provide additional support for vulnerable consumers.
The FSC has also developed minimum standard medical definitions for heart attack, stroke and cancer, which will be released for public consultation today. After the consultation period, during which time the FSC will be seeking the input of external medical specialists, the definitions will be submitted to the Australian Competition and Consumer Commission (ACCC) for approval.
FSC CEO Sally Loane said: “An independent Herbert Smith Freehills report shows that the Code clearly expands the range of obligations imposed by other financial services codes and exceeds the standards imposed by existing law in many areas. In a number of areas it is ground breaking self-regulation.
“Life insurers have come together to develop the Life Insurance Code of Practice as a demonstration of just how serious we are about improving our industry standards for the benefit of all Australians. We all want to strengthen trust.
“Life insurance is a significantly valuable investment for all Australians, as it protects against the economic impacts of premature death, or illness, injury or disability that impacts an individuals’ ability to earn an income.
“We want Australians to understand that life insurance can and does measurably improve lives and protect livelihoods.
“The Code is built on some fundamental principles – honesty, transparency, fairness and timeliness.”
The Code goes beyond the existing law in many areas, and fills in detail where the law is silent in relation to customer service, such as detailed plain-English disclosure, a requirement to review and update medical definitions, detail around how sales must be conducted and monitored, remedies for mis- selling, a clear process for claims handling, and standards for claims investigations, including interviews and surveillance.
Ms Loane said: “It is a landmark piece of self-regulation which should give consumers confidence that our industry is leading continuous improvement.”
Consultation:
The Code has been developed with extensive feedback through a comprehensive process involving engagement with a range of consumer and community groups, regulators, peak industry groups including adviser and superannuation organisations, superannuation trustees, legal aid and plaintiff lawyers, groups working with Indigenous communities, the Ombudsman, FSC members and the general public.
The submissions received during the Code’s recent month-long public consultation period are published on the FSC website.
Ms Loane said: “Some of the public feedback has informed the current version of the Code. Any that has not been incorporated will be considered during the first review of the Code, with a view to consistently improving and expanding the Code standards.”
Compliance:
The Code’s consumer protections will be strengthened by an independent governance framework outside the FSC. The Life Code Compliance Committee, which will comprise three independent experts including a consumer advocate, will have the power to ensure insurers’ compliance with the Code.
The FSC has determined a number of key priority areas it will focus on, including:
Life Cover in Group Superannuation:
The Code places obligations on life insurers who provide group insurance through superannuation funds.
However superannuation trustees will often carry out most of the member-facing activity.
The FSC is committed to working collaboratively with the superannuation industry to deliver end to end commitment to the insurance experience for superannuation members. These discussions with the superannuation industry will continue.
To this end, the FSC has released a Statement of Intent with organisations representing all superannuation trustees, ASFA, AIST, ISA and IFF, which commits to working together to lift standards for group insurance, including the role of super trustees.
Sally Loane said: “Most Australians receive their life insurance in their group, or workplace superannuation fund.
“The Life Insurance Code covers the obligations of life insurance companies to consumers in group super funds, but it cannot impose obligations on trustees of super funds because not all super funds are FSC members.
“We are encouraged by the commitment by ASFA, AIST, ISA and IFF to working with us to ensure obligations in group insurance will be broadened.”
Advisers:
• The Code’s first iteration is a code for consumers. The relationship between insurers and financial advisers is an important but different one, and we are committed to working with the peak adviser organisations to address mutual obligations.
Funeral Insurance and Consumer Credit Insurance
• In response to recent ASIC reports on funeral insurance and consumer credit insurance, the industry will address the issues raised including through limitations on sales and premium structures. These standards would require the second iteration of the Code to be submitted for ACCC approval.
Enforcement:
• In response to feedback from stakeholders, the FSC will consider making an application for ASIC approval of the second iteration of the Code.
Products and definitions
• Building on the work done to date on draft minimum standard medical definitions, the FSC will investigate whether further standardisation or updating of definitions is required.
• The industry will discuss the possibility of putting in place a standardised process for policy upgrades for existing customers.
Mental-health specific standards
• The next iteration of the code will seek to increase obligations on insurers when interacting with consumers suffering mental health issues.
• The FSC will work with groups like Beyond Blue, Lifeline, Mental Health Australia and the Public Interest Advocacy Centre to determine how to better serve those consumers with mental health issues.
BACKGROUND:
The Life Insurance Code of Practice is part of a broad package of reforms in life insurance which have been rolling out over the past 18 months since John Trowbridge, a former APRA member and independent expert, announced the findings of his investigation of the life insurance industry.
Mr Trowbridge was commissioned by the FSC and the AFA to review the sector in the wake of a damning ASIC investigation into retail life insurance advice.
The Trowbridge Report made wholesale recommendations to reform the industry including amending remuneration arrangements between insurers and advisers to minimise conflicts of interest. His report, along with industry negotiations, including with the AFA and the FPA, resulted in significant reforms, most of which are now laid out in legislation expected before Parliament shortly, the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill.
As part of the industry’s response to the Trowbridge review, the FSC committed to a Life Insurance Code of Practice. This will be binding on members who must be fully compliant by 1 July 2017.
LIFE INSURANCE – FACTS:
Life insurance pays out around $8 billion of claims every year.
Life insurance helps protect Australians against the economic impacts of premature death, as well as long term or short term illness, injury or disability that impacts their ability to earn an income.
1. Term Life Insurance pays a lump sum to a beneficiary such as a partner or child upon the death of the policy holder.
2. Total and Permanent Disability – known as TPD – pays a lump sum if the client becomes totally and permanently disabled.
3. Trauma provides payment if a person is diagnosed with a specified serious illness or injury. These policies include the major illnesses or injuries that will make a significant impact on a person’s life, such as cancer or a stroke
4. Income Protection replaces the income lost due to a person’s inability to work due to injury or sickness.
