An industry-wide set of standard definitions of heart attack, stroke and cancer, along with standards on claims handling, will form the centrepiece of a new life insurance code of practice released by the Financial Services Council (FSC) yesterday.
The code comes into effect from July 1 next year, with further consultation underway with the industry and the Australian Competition and Consumer Commission (ACCC) on the final form of the standard definitions. The code is mandatory for all FSC members that are involved in the retail life insurance industry. FSC members collectively account for about 99 per cent of in-force premiums. A code of practice was recommended in John Trowbridge’s review of the retail life insurance industry, the final version of which was delivered in March last year. It has taken until now to forge the code with the agreement of all FSC members.
The chief executive of the FSC, Sally Loane, said that while the code is “first and foremost for consumers” it also recognises that advisers are “a very important group of stakeholders for life insurers”.
“We are committed to working with the peak adviser organisations to address mutual obligations between insurers and advisers,” Loane said.
The author of the Trowbridge report and … John Trowbridge, said the code was “the first time we’ve seen an initiative aimed at raising standards across the industry”.
“This hasn’t happened before,” he said.
“It’s the first time the industry has had an industry-wide set of standards to which they are all committed and can be held accountable. It’s part of a suite of pro-consumer reforms taking place across the industry. The other reforms, which are mainly the subject of legislation, include reductions in initial commissions paid to advisers, banning of conflicted payments to licensees, lapse reporting requirements to ASIC, the opening up of APLs, and improvements to the advice process via streamlining statements of advice.
“Most of these reforms are contained in the legislation that we’re told will be reintroduced into parliament this week.”
While the launch of the code was welcomed by the government and by the life insurance industry, the law firm Slater and Gordon warned that it failed to address main of the industry’s major shortcomings.
‘Enhanced’ role for advisers
Trowbridge said the code would help both consumers and advisers hold life insurance companies accountable for the products they manufacture and the service they provide.
“One of the problems in the industry has been the primary relationship for insurers has always been with advisers, rather than with their customers, their clients,” Trowbridge said.
“This code should change the relationships: it should bring the consumer much closer to the insurer. It won’t diminish in any way the role of the adviser – in fact, I think it will enhance it, because now advisers will have a set of standards on behalf of their customers that they can hold the insurers accountable [to]. That’s a big step forward.
“Equally, if consumers are unhappy with whatever is going on, and their adviser doesn’t appear to be helping them, this gives them the obvious means to go directly to the insurer. So there’s a reinforcing of cross-accountability, if you like, between adviser, customer and insurer.”
Trowbridge says the code addresses two of the biggest complaints that advisers have about life insurance companies and which they raised with him during the course of his review.
“One was indeed the slow and difficult process with insurers on claims, especially where there was medical advice involved,” he said.
“There were just so many complaints about poor process. So the code has set standards around that.
“The other one I found interesting was when a new policy was sold the insurer couldn’t be quicker and nicer about getting that policy on the books, but if the policyholder or the adviser wanted to change something – even if it’s just a change of address – the service was terrible.
“You’ve got the wrong incentives, if you like, in the system, and this code of practice ought to do a lot to set standards to overcome those problems.”
Lifting their game
Loane said that 18 months on from the release of Trowbridge’s report, the life insurance industry has “shown we’re responsive, we’re nimble and we’re determined to rebuild trust”.
“The code will ensure that insurer practices and obligations are lifted substantially to better meet consumer needs and expectations,” she said.
“The code is governed by an independent body, the life code compliance committee (LCCC), [which] will comprise three independent experts, including a consumer advocate, and it will have the power to ensure compliance.”
Loane says 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 customers.
Proposed minimum standard definitions for heart attack, stroke and cancer were released for consultation yesterday.
“We will be seeking the input of external medical specialists during this whole consultation period, and then the definitions will be submitted to the Australian Competition and Consumer Commission for approval,” Loane said.
Loane said an independent report by law firm Herbert Smith Freehills shows the FSC code “expands the range of obligations imposed by other financial services codes, and exceeds the standards imposed by existing law in many areas”.
“The code 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,” she said.
“In a number of areas it is ground-breaking self-regulation, which should give consumers confidence that our industry is leading continuous improvement.”
Collaborative agreement with super
Loane said the code also applies to life insurance companies that provide group insurance cover through superannuation funds.
“Every Australian who holds a life insurance policy, either individually or in a group policy though super, is covered by the code,” she said.
“Super trustees, however, carry out most of the member-facing activity. To ensure that the code covers trustees, we have a collaborative agreement with the superannuation industry which will deliver end-to-end commitment to the insurance experience for superannuation members.
“To that end we have released a statement of intent with ASFA, AIST, ISA and IFF which commits to working together to lift standards for group insurers, including the role of trustees.”
Trowbridge noted that the code would only be as good as its implementation allows.
“What APRA does is have a whole lot of standards; the standards on their own don’t count for everything,” he said.
“What counts is the supervision and the involvement of the people on both sides of the fence, if you like, around that. Really, in the end, a measure of the effectiveness of the code will not be so much what’s in the words … but it is how it is implemented that really matters.
“The proof of the pudding is never in the making of the pudding, it’s actually in the eating of it.
“If [the code] is followed assiduously by insurers, it has the potential to create a step-change in in the quality of products and services offered by the industry, creating [a] much improved policyholder and claimant experience and also rebuilding trust and confidence in the life industry.”
Independent ‘enforceability’
Damian Mu, AIA Australia managing director and co-chair (with TAL chief executive Brett Clark) of the FSC life board committee, said the code is “an important statement around [what] we as an industry will be bound to do better on behalf of consumers and Australians, as they look to us and trust in us to be there at their time of need”.
Mu said the code is an important first step, but the FSC and life insurance companies are aware there is more to be done.
“The code does go beyond the legal requirements that we have, and places significant onus and obligations on insurers to go beyond that,” he said.
“What we want to see through this code is a clear indication of the timeliness and response times consumers and claimants should expect when they lodge their claims and the process that they undertake, but also that they can expect that we will be there to support and assist them.
“It’s great to have a code, but as John said it’s about how we eat that pudding … and having enforceability that is independent. We will have an independent committee that will look over compliance with the code; and we will continue to work with ASIC as we look at iterations of the future code to look at the enforceability of that to make sure it is being done appropriately.”
