The Financial Services Council has released a draft of the new Life Insurance Code of Practice for public consultation.
Round 6 of the Financial Services Royal Commission hearings considered the updating of medical definitions in life insurance products and other issues relating to the Code and life insurance.
The Final Report of the Royal Commission is expected to consider whether:
- the Life Insurance Code of Practice should apply to all insurers in respect of the relevant categories of business;
- a failure to comply with the Life Insurance Code of Practice constitutes:
- a failure to comply with financial services laws (for the purpose of section 912A of the Corporations Act 2001 (Cth));
- a failure to comply with an Act (for example, the Corporations Act 2001 (Cth) or the Insurance Contracts Act 1984 (Cth)).
Proposed changes to the new Code include:
• Banning pressure selling of products and coercive retention tactics.
• Banning medical disclosure checking without reasonable grounds.
• Ensuring customers are no better or worse off at claim time (excluding fraud).
• Improving Funeral insurance to ensure people understand what they are buying.
• Separating Consumer Credit Insurance (CCI) from credit product sales.
• Binding trustees of Superannuation funds to the Code.
• Extending coverage of the Code to include all life insurance distributors.
Reforms to underwriting, claims and mental health include:
• Taking individual circumstances of mental health conditions (including history and severity) into account in underwriting.
• Including people with a mental health condition as “vulnerable”.
• Greater protection for customers during claims interviews.
• Plain language explanations of the reasons for non-standard terms, such as exclusions.
• Clearer questions on application forms.
The draft Code also includes a moratorium on genetic testing in life insurance.
The industry plans to have the updated Chapter 1 enacted from 1 July 2019 and Chapter 2 by 30 June 2021. The Code will be independently reviewed every three years from 2022.
The Life Insurance Code of Practice is mandatory for all FSC member life insurers. The Code is enforced by the independent Life Code Compliance Committee which is administered by the Australian Financial Complaints Authority (AFCA).
