September 11, 2018
The inconsistencies in the treatment of life insurance products under law has been raised by the Royal Commission which questioned why ASIC did not have full oversight over their distribution and application during claims.
In opening remarks to the Commission, Council Assisting, Rowena Orr QC said that while life insurers were subject to prudential regulation by APRA, life insurance policies were financial products according to the Corporations Act, and were subject to financial services regulations overseen by ASIC.
Orr added that the sale of a life insurance policy was a financial service and required life insurers to hold an Australian financial services licence which also obligated them to provide financial services efficiently, honestly and fairly, manage conflicts of interest, and to have a dispute resolution system for clients.
“Although most life insurance policies are financial products and the selling of those policies is a financial service, it is important to note that the handling and settling of insurance claims is specifically excluded from the definition of a financial service,” Orr said.
“…is it appropriate that the handling of insurance claims is currently largely outside of ASIC’s jurisdiction?”
“This means that the obligations that we’ve just referred to…do not apply to the process leading to making a decision about a claim, including the investigation of the claim and the interpretation of policy provisions, to negotiations of settlement amounts…or recommendations on mitigation of loss,” Orr added.
She added this different treatment of policies and claims under law limited the ability of ASIC to take action against insurers engaged in unnecessary or extensive delays in handling claims, and the Commission would examine the current arrangements.
“Some of the key questions that we will address in this round of hearings are is there an appropriate balance between self-regulation and external regulation in the insurance industry. In particular, is it appropriate that the handling of insurance claims is currently largely outside of ASIC’s jurisdiction?” Orr said.