Life Insurance Code of Practice

Effective from 1 October 2016 the Financial Services Council (FSC) has issued a Life Insurance Code of Practice. The Code commits members of the FSC such as life insurers to uphold the standards set out in the Code.

There is a transition period up to 30 June 2017 for insurers to agree to be bound by the Code. They are not bound until they have advised the FSC of the date they have transitioned to the Code.

The upsides to the Code are:

• There is now an industry standard as to what is and is not acceptable conduct by a life insurer;
• Investigation and assessment of claims is limited to relevant and reasonably requested information;
• Multiple medical examinations are limited;
• Time frames for decisions to be made other than in unexpected circumstances are two months for income related claims or six months for other claims which are reasonable periods;
• Surveillance cannot be undertaken as a matter of course and must only be done in circumstances where there is some existing inconsistency and decisions to conduct surveillance must be documented and made at a senior level;
• Provision for early or advance payments in cases of urgent financial need are provided for;
• Life insurers will not exercise an exclusion clause for a pre-existing medical condition which they knew about during the application process.

The downsides or inadequacies of the Code are:

• The Code does not bind superannuation trustees who control access to a large number of life and disability insurance policies for the majority of Australians;
• Communication of key policy design and disclosure points is restricted to retail policies and does not apply to group policies obtained through superannuation or other group situations such as where an employer takes out the policy on behalf of its employees;
• The access to information provisions are restricted to providing access to documents which the insurer has relied upon. Documents which may equally be relevant to the claim and likely to support the claim but not relied upon by the insurer do not have to be provided;
• In addition insurers can withhold release of information which may be prejudicial to them in any dispute about insurance coverage or an insurance claim;
• It is not sanctioned by ASIC and covers only a restricted portion of the industry who are members of the FSC or have otherwise agreed to be bound by the Code;
• The Code does not apply in circumstances where court proceedings are commenced by the claimant.

The publication and implementation of a life insurance code of practice is a welcome response from the industry. Unfortunately the deficiencies in the Code and its limited application mean that a much stronger standard is required and one which is enforceable by the regulator if a Code is to make any difference.

The Code none the less provides a standard for the industry and one which claimants can refer to in any dealings with a life insurer. A breach of the Code would not of itself produce a remedy for a claimant however multiple breaches of the Code might be evidence of a lack of good faith on the part of a life insurer.

The day after the code was published the regulator ASIC published its own report into the industry which recommended a more robust code of conduct for life insurers which is a recognition of the deficiencies of the current industry code.

It is a good first step by the industry but much more protection is required for consumers to avoid the poor conduct and behaviours of Australian life insurers which has come to light in the last 12 months.