A review of complaints has found that Life insurers breached the industry’s own code of practice at least 315 times in just six months. A report released this week by the Life Code Compliance Committee (LCCC) said many insurance companies “lacked robust frameworks for monitoring compliance” with the code and criticised the industry for taking far too long to clean up its act. Law firm Maurice Blackburn lodged complaints against insurers in early 2018, but most insurers failed to respond to initial inquiries from the LCCC - the body that oversees the code. It’s an outcome that looks bad in the eyes of the public and further discredits self-regulation of the industry, helping invite even more government regulation.
About the Code
The Life Insurance Code of Practice (the Code) requires life insurers, friendly societies that offer life insurance products and other industry participants, who have adopted the Code to provide services to their customer of a high standard and in a timely, honest, fair and transparent way.
The Code aims to improve standards of service and practice in the Australian life insurance industry. Life insurers that adopt the code have formally agreed to be bound by its standards.
The Code is owned and published by the Financial Services Council (FSC) and forms an important part of the broader financial services customer protection framework. All life insurance companies which are FSC members were required to be compliant with the Code by 1 July 2017.
The Life Insurance Code Compliance Committee (Life CCC) independently monitors the Code to ensure life insurance companies are meeting their obligations and achieving service standards consumers can trust.
The industry set up the code committee in 2017 after media reports that exposed allegations of misbehaviour taking in bullying, the use of outdated medical definitions and doctor shopping by insurers.
Maurice Blackburn lodged 700 complaints with the committee in early 2018 against insurers AIA, AMP, Asteron, CommInsure, Hannover, Metlife, MLC, OnePath, Suncorp, TAL, Westpac and Zurich, but the majority then failed to respond to initial inquiries from the Life CCC.
The LCCC’s report issued on Wednesday, said many insurance companies “lacked robust frameworks for monitoring compliance” and that any improvements were “largely only occurring as a result of the review rather than the subscribers’ desire to ensure they comply with the code”.
“Most subscribers failed to respond to the committee’s request, which was both perplexing and disappointing,” the committee said. The committee said it finally got responses after it escalated the issue by writing to insurance company chief executives in August last year.
This types of behaviour unfortunately adds more credence to the argument that self-regulation does not work and that similar industry monitoring schemes are in actuality just fig-leaf’s designed to sate the political and activists desire for more regulation, but which have little effect other than increasing opportunities for law firms to embarrass the industry and make further regulation more likely.
For example - the Maurice Blackburn principal Josh Mennen, who lodged the complaints, said they were the “tip of the iceberg”. “Had the code had real teeth as we have been calling for several years, our clients’ cases would not have been impacted with significant delays and would instead have been dealt with in a timely fashion,” he said.
The FSC defended the industry and has claimed the LCCC’s report was the final outcome of a review relating to cases dating back to the early days of the Life Insurance Code of Practice. They suggested the referrals were “old, resolved cases” and pointed out the report was “silent on the positive changes made by the life insurance sector”.
ASIC Guidance Released – Have Your Say!
In other news, ASIC has released additional guidance for forthcoming legislation around changes to ongoing fee arrangements and independence disclosure for advisers. In its Consultation Paper 329: Implementing the Royal Commission recommendations: Advice fee consents and independence disclosure.
ASIC said it would develop three legislative instruments outlining:
- the written consent fee advisers must receive from clients before arranging to deduct ongoing fees from a client’s account;
- the written consent super trustees must receive from members before allowing ongoing fees to be deducted from their account;
- and prescribing requirements in the statement providing entities must include in their financial services guide around lack of independence.
Potential requirements to be included on the consent forms included "only" the following; the name and contact details of the account holder; an explanation of why the account holder’s consent was being sought; the services the client was entitled to receive under the arrangement; the frequency, amount and time of each payment deducted from the client’s account; details of benefits in the account that could be eroded because of the fees; the expiry date of the consent; and the option for the client to withdraw their consent at any time.
ASIC mentioned that they “may reconsider the requirements in the proposed legislative instruments if we find they are resulting in adverse consumer outcomes”, and the discussion paper notes that the proposals are based on draft legislation and the proposals may change depending on the final form of the legislation.
Have Your Say!
ASIC have said they are keen to fully understand and assess the financial and other impacts of the proposals asked people making submissions about the proposals to comment on:
- the likely compliance costs;
- the likely effect on competition; and
- other impacts, costs and benefits.
It might to time to fire off a response to ASIC before the commenting deadline on April 7th.