In 2016-17, consumers lodged 626 financial advice disputes with the Financial Ombudsman Service. Of these, 70 involved life insurance products and the key issue in these disputes was denial of claim, usually on the basis of innocent non-disclosure or a pre-existing condition.
Sometimes this meant FOS handled a dispute lodged against both the life insurer, for wrongly denying a claim, and a financial adviser, for inappropriate advice to purchase new or replacement cover or for failure to disclose relevant information provided by a client to the insurer.
It is important therefore for financial advisers to be aware of the new obligations for life insurers under the recently established Life Insurance Code of Practice.
The new Code of Practice came into effect on July 1, 2017. It was developed by the life insurance industry to promote consistently high service standards and set a framework for professional behaviour and responsibilities among insurers to protect consumers.
The code requires insurers to improve disclosure to customers, provide greater transparency in communications, provide reasons for claims decisions, decide claims within set time frames, act fairly and with empathy in service delivery and help vulnerable consumers.
It encompasses many aspects of a customer’s relationship with their insurer – from buying insurance to making a claim, and providing options to people experiencing financial hardship or requiring additional support.
It is binding on life insurers that subscribe to the code and insurers can be sanctioned if they do not correct code breaches. While financial advisers are not bound by the code, they have obligations under the law and their own professional codes of conduct that will still apply when providing advice about life insurance policies.
In determining a dispute based on what is fair in all of the circumstances, FOS may have regard to the new code’s obligations. This includes whether the life insurer has complied with new obligations about denial of life insurance claims for non-disclosure, a pre-existing medical condition or under replacement policies.
These obligations are clearly relevant when providing advice about the purchase of life insurance, assisting clients to apply for life insurance products and making claims in particular.
Some of the key clauses in the new code include:
Consumers must be provided with documentation that explains in plain English the types, duration and costs of cover, waiting and cooling-off periods, and specific events for which they are not covered.
Where there is an exclusion clause, consumers must be provided with details of how and when the exclusion applies.
Life insurers must tell consumers not to cancel their policy until new cover is accepted and they have explained the general risks of replacing a policy.
Information requested with the application
Insurers may ask for additional information, such as a medical examination, to assess an application for insurance but only when it is relevant and reasonable to do so. They must also provide reasons about why they have made this request.
If insurers become aware of a mistake during the application process, they must advise the consumer immediately and if they do not offer cover must provide reasons for their decision.
Life insurers must provide adequate resources and have processes in place to train staff to help identify and engage appropriately with consumers who are having particular difficulty buying insurance, making an enquiry, claim or complaint, or who may not be capable of making an informed decision.
Life insurers must refer consumers for appropriate additional support where required and take into account someone’s capability when making decisions that affect them.
Life insurers must handle claims in a timely and efficient manner and provide reasons for decisions to decline
Monitoring the new code
The new code is independently monitored by the Life Code Compliance Committee, which is chaired by the former chair of the Australian Press Council, Professor David Weisbrot.
The code was developed by the Financial Services Council following extensive public consultation.