The Financial Services Council has released a draft of the new Life Insurance Code of Practice (Code) for public consultation. This follows scrutiny of the industry, including sales and claims practices, during the round 6 hearings at the Financial Services Royal Commission.
The draft Code builds on the existing code and is designed to lift standards in product design, sales, underwriting, customer service, complaints and claims handling. Chapter 1 places obligations on life insurance companies and Chapter 2 places obligations on superannuation trustees where life insurance is in superannuation.
Key changes proposed by the draft Code include the following:
- Increased obligations around funeral insurance, including a prohibition on knowingly promoting these policies to people under the age of 40 and a requirement to design funeral insurance products to suit the target market. Funeral expenses insurance is also now captured by the funeral insurance obligations.
- Where stand-alone cover for accidental death is offered, the insurer must document the target market and not knowingly promote the product outside the target market.
- Where the ability to claim depends on earnings at the time of claim (such as under some types of income protection), details of earnings must be collected during the application process to ensure the customer is not offered more cover than they would be able to claim.
- Insurers must ensure that short-term incentives (such as gift cards or reward points) do not encourage customers to take out the policy solely for that incentive.
- Sales staff’s remuneration must be consistent with good customer outcomes and comply with relevant law (including having compliance performance measures and consequences for unacceptable sales practices).
- Where a distributor is used to sell policies (that is not staff or an authorised representative), reasonable steps must be taken to ensure the distributor maintains process and procedures consistent with the Code.
- Documented sales rules are required in relation to direct sales of life insurance.
- A deferred sales period for consumer credit insurance (CCI) is introduced, meaning where CCI is available over credit cards or personal loans arranged over the phone or face-to-face, the CCI will not be able to be offered until at least four days after the loan application. Further, where CCI is applied for through a digital channel, the digital application process cannot start until the digital application for the credit product is completed.
- A moratorium on genetic testing (so that an insured can get up to $500,000 of life cover without having to disclose an adverse genetic test result).
Consultation on the draft Code closes on 12 January 2018. It is intended 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.
Further information, including a copy of the draft Code, can be found here.