The Code came into effect in July 2017 and is binding on members of the Financial Services Council (FSC). It isn‚Äôt enforceable and avoids naming and shaming institutions. Nor does it conduct random audits and largely relies on industry members to supply information that isn‚Äôt necessarily reliable.
Despite the shortcomings and the attempts by the committee to paint the report as ‚Äúan enlightening snapshot of the life insurance industry‚ÄĚ and its compliance with the code, the perception gap between the sector and the committee is notable. The report says in a questionnaire 22 of its 24 subscribers said they were satisfied they had the right processes and
procedures in place to comply with the code.
The committee, however, says, it isn‚Äôt confident in the robustness of all subscribers‚Äô compliance frameworks. ‚ÄúBased on our observations throughout the review, it is also unclear, in many cases, whether formal processes and procedures are actually implemented and operating effectively in practice.‚ÄĚ
The other code, Insurance in Super Voluntary Code of Practice, is even weaker as it doesn‚Äôt have a committee to oversee compliance with the code.
By law, millions of Australians are passively channelled into life insurance policies, paying billions of dollars a year in premiums that provide for income protection insurance and lump-sum payouts on death or total and permanent disability (TPD) through “group” deals struck between insurers and super funds.
The Hayne commission heard a litany of life insurance horror stories, including poor behaviour of insurers to keep a lid on insurance claims, including selling policies with old medical definitions and false and misleading advertising.
In the case of one of the country’s biggest insurers TAL, the royal commission found that managers had been incentivised to knock back claims. A 2015 spreadsheet of a scorecard measuring performance included a key performance indicator (KPI) to “achieve budgeted profit targets by managing claims to outcomes in line with assumptions underpinning loss ratio targets”.
Commissioner Kenneth Hayne made a series of recommendations including reducing the current cap on commissions on life insurance products, making the life insurance codes enforceable, bringing life insurance contracts under unfair contract laws and changing claims handling exemptions.
Right now, insurance falls within the Insurance Contracts Act, which contains a duty of utmost good faith. If an insurer fails to comply with this duty it is deemed a breach but no penalties are imposed.
Speculation is rife that there has been some aggressive lobbying behind the scenes to either kill or water down Hayne‚Äôs recommendations on the basis it would have a massive impact on the sector.
The FSC has been busy working on a second version of its code in an attempt to show the sector is capable of reforming itself.
But the consumer movement isn‚Äôt convinced. In a 121-page submission lodged in January 2019, the Financial Legal Centre, Financial Counselling Australia and Redfern Legal Centre lambasted its poor consultation process, saying it lacked transparency, inclusion or ‚Äúany semblance of independence.‚ÄĚ
The submission called on the FSC to make the code binding and enforceable against subscribers through contractual arrangements with consumers.
It identified a series of recommendations made by parliamentary inquiry into the life insurance industry that have not been addressed in the code. They include the sale of direct life insurance, standardising all definitions used in life insurance products, updating all medical definitions, providing upper limits on medical examinations, addressing pre-existing conditions, and implementing a moratorium on the use of genetic tests in line with the UK moratorium.
Against this backdrop of lobbying, ASIC and APRA released an online database on Friday that allows consumers to compare insurers based on the percentage of claims accepted, the length of time taken to pay claims, the number of disputes and the policy cancellation rates.
The database has some shortcomings but it usefully highlights some of the insurance outliers. For instance, Suncorp/Asteron denied 30.7 per cent of claims on total and permanent disability policies in super, compared with the industry average of 13.7 per cent, and took 10 months to resolve claims, which was almost double the industry average.
In terms of disputes, Suncorp/Asteron had 10 times the industry average of disputes for every 100,000 lives insured. Suncorp/Asteron was also an outlier in death insurance in super, denying 12 per cent of claims compared with the industry average of 2.1 per cent.
In income protection sold directly through an insurer, Suncorp/Asteron also came out the worst, denying 22.3 per cent of claims, compared with the industry average of 17.5 per cent.
Whatever the excuse, it should be a prod to the regulators and the Code committee to delve deeper into the outliers and do their own investigation into why.
Some of the big banks and insurers have sold off their life insurance arms recently, to avoid further scandals.
But the problems haven‚Äôt gone away, says lawyer John Berrill from Berrill Watson, a law firm that specialises in life insurance and manages more than 1000 life insurance claims at any one time.
In recent months he has noticed a trend where legacy products of insurers in run-off are increasingly playing hardball on claims.
‚ÄúThere is always a concern that claims for insurance in run-off are slower and harder when no premium income is coming in,‚ÄĚ he says. ‚ÄúIt is the job of code compliance committees to watch this practice carefully to make sure claims are being properly dealt with.‚ÄĚ
Berrill says it is another reason why Hayne‚Äôs recommendations need to be adopted and the insurance codes need to be enforceable with oversight committees that have teeth and conduct robust random audits on insurers to hold them accountable. In the meantime, the lobbyists will keep lobbying and the insurers will hope they can once again slip through the cracks.