Life insurance industry code of conduct fails the litmus test
12th Oct 2016
A Code of Practice designed to regulate life insurance companies would still allow them to deny genuine claims, the Australian Lawyers Alliance (ALA) said today.
The Financial Services Council (FSC) today announced the life insurance industry’s Code of Practice, touted as the answer to systemic issues plaguing the sector which came to light in a series of media reports earlier this year.
However ALA spokesperson Josh Mennen said the Code failed in its aim to reform the industry and provide additional oversight and regulation of life insurance companies.
“The FSC’s Code of Practice for the life insurance industry fails right out of the gate – ASIC agrees that the Code needs “extension and enhancement”. It’s a renovator’s delight, providing insufficient protection to consumers,” Mr Mennen said.
“As it stands, the Code doesn’t pass the litmus test. Insurance companies could still improperly deny genuine claims made by vulnerable Australians simply to make a bigger profit.
“Genuine claimants who have suffered conditions such as heart attacks, strokes and cancer have seen their life insurance provider deny claims based solely on out-of-date medical definitions. Standard definitions need to be regulated into law and updated in line with medical advancements because the industry cannot be trusted to lead the way,” Mr Mennen said.
“The life insurance industry sorely needs reform, however the FSC’s Code of Practice largely restates existing laws that govern the industry,” Mr Mennen said.
“While it’s good to have consumer-friendly information available, the substance of this Code does very little to enhance industry obligations beyond those required by the law.”
“In addition, this new Code does not bind superannuation fund trustees who own and administer the majority of disability claims.” Mr Mennen said.
“The ALA is currently seeking to consult with the life insurance industry about a proposed Code of Practice that does bind super fund trustees and provides other essential consumer protections. However the insurance industry has not yet engaged in productive discussion about our proposed Code, despite numerous invitations.
“We are uniquely positioned to inform the industry about the challenges that our clients have faced. If they are genuine about reform, it is surprising they are not interested in our proposed Code.” Mr Mennen said.
Mr Mennen said the Australian Lawyers Alliance is calling for a three-part reform in the insurance sector, and particularly for total permanent disability claims. These reforms are based on:
- identifying bad behaviour and calling it out;
- confirming the minimum standards that insurance policies should meet, particularly in relation to TPD and Death policies provided via superannuation funds; and
- encouraging and ensuring higher standards of behaviour and conduct within the sector.
Mr Mennen said that the best solution to exposing the cultural issues in the banking sector was to set up a Royal Commission, and that the government’s suite of responses, including the establishment of a banking Tribunal, fails to meaningfully respond to the deep cultural and systemic flaws in the sector which have devastated so many genuine claimants.
“Only a Royal Commission can give the necessary level of scrutiny needed to explore and address the systemic problems, by compelling document production and oral evidence under oath,” Mr Mennen said.