Revised FSC Life Code to Cover All Distribution Channels

The Financial Services Council (FSC) has released a draft of the second version of its Life Insurance Code of Practice (LICP) which it intends will apply to all distributors of the products of a life insurer.

FSC Senior Policy Manager, Nick Kirwan

Speaking at the release of the draft, FSC Senior Policy Manager, Nick Kirwan said the revised Code would apply to any life insurer’s products regardless of what channel they were distributed through and was a shift from the first version of the Code which only covered the channels owned by the insurers.

Specifically, the draft Code states, “If we [Life Insurance members of the FSC] use a distributor to sell our policies that is not our staff or our Authorised Representative, we will take reasonable steps so that we are satisfied that the distributor maintains processes and procedures that are consistent with good customer outcomes and the obligations in the Code.”

The extension of obligations to all distribution channels is part of a series of changes related to the sales of life insurance products with the revised Code also banning the pressure selling of products and coercive retention tactics.

Kirwan said the banning of pressure selling would include identifying vulnerable customers and not taking advantage of that, and gaining explicit consent to start the application process in the direct sales of life insurance.

The second version of the Code would also be binding on superannuation trustees with the voluntary code of the Industry Super Working Group (ISWG) having been adopted by the FSC for its superannuation members, and making up a new, second chapter of the LICP.

Other proposed changes to the Code include:

  • Banning medical disclosure checking without reasonable grounds.
  • Ensuring customers are no better or worse off at claim time (excluding fraud).
  • Reforms to underwriting, claims and mental health, including:
    • 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.

Kirwan said the FSC was proud of the first version of the Code which introduced major changes to the life insurance sector and the second version was a further step change that built on feedback from industry stakeholders as well as ASIC, the Financial Services Royal Commission, Productivity Commission and the Parliamentary Joint Committee.

Speaking at the release of the draft Code, FSC Chief Executive, Sally Loane said the second version was ‘comprehensively different’ from the first.

“We owe it to consumers to do a better job. Today with the release of the consultation draft of the second iteration of the Code the life insurance industry is demonstrating it is serious about improving products, practices and governance to rebuild the standing of the sector,” Loane said.

The revised Code will come into effect in stages, with Chapter 1, relating to life insurers, enacted from 1 July 2019 and Chapter 2, relating to superannuation trustees, by 30 June 2021. The ISWG Code will also become mandatory for non-FSC members on that date (see: Super Trustees Urged to Adopt Life Insurance Code).

The draft Code, which will also include the recently announced moratorium on genetics testing in life insurance (see: Life Insurers Place Halt on Use of Genetic Tests), is currently open to consultation until 12 January 2019 and public meetings will be held in Melbourne, Brisbane and Sydney. The FSC will also accept written submissions on the revisions.