Insurance companies in Australia are now subject to stricter, more transparent consumer protection guidelines as part of the financial services industry’s first ever Life Insurance Code of Practice for consumers.
As a result of the changes, that came into practice on July 1, all Australian Financial Services Council (FSC) members must ensure that “strong consumer protections and high standards of customer service” are adhered to, or companies will face a series of penalties.
The establishment of the FSC Life Insurance Code of Practice was a recommendation of the 2015 Trowbridge Review into the life insurance sector, the FSC said in a statement announcing the changes.
The review has already resulted in a series of industry reforms designed to “improve consumer outcomes”, that has affected the financial adviser community. This has included the creation of an independent standards setting body and new laws limiting upfront commissions to advisers and licensees, as well as banning conflicted remuneration provisions on life insurance products.
The new Code covers all aspects of interactions with consumers from product design, buying insurance, regular communications and making claims. 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.
Non-compliance with the Code can result in strong sanctions including:
- a formal warning;
- requiring a Code compliance audit be taken;
- requiring corrective advertising or written acknowledgment of a breach to impacted customers;
- publication of non-compliance on the insurance provider’s website and the FSC website.
- requiring rectification steps within specified timeframes;
Sally Loane, chief executive of the FSC said: “The Life Insurance Code of Practice demonstrates the life insurance industry’s commitment to improving standards and strengthening consumer protections. This document is a clear declaration of the level of service consumers can expect from life insurers in language they can understand.
“The FSC has worked closely with our life insurance members and medical professionals to ensure that a new foundation of minimum standard medical definitions, is implemented for new policies from day one of the Code regime. In doing so we have laid the foundations for the on-going strengthening of the Code.
Loane added that as part of the second iteration of Code, its is “committed” to considering ASIC registration.
The Code has a a foundation of new minimum standard medical definitions for cancer, heart attack and stroke for use in trauma/critical illness policies. It has also seen the creation of a Life Code Compliance Committee (LCCC).
Administered by the Financial Ombudsman Service, the Committee comprises a representative from industry, a consumer representative and an independent chair.
LCCC members include David Weisbrot (chair), a fellow of the Australian Academy of Law; David Goodsall, a fellow and past president of the Institute of Actuaries of Australia and a fellow of the AICD; and Alexandra Kelly, the principal solicitor of the NSW-based Financial Rights Legal Centre.
Loane added: “I welcome the appointments to the LCCC and look forward to working closely with them in ensuring the Code delivers on its promises to consumers.”