The Financial Services Council (FSC) has opened its draft Life Insurance Code of Practice to public consultation for one month with consumer and industry groups stating further work needed to be done before its adoption.
The Code, which was made public on 10th August with little fanfare, covers all aspects of the delivery of life insurance services to consumers and includes the four main product areas of life insurance – death, trauma, TPD and income protection – as well as business expenses, funeral and consumer credit insurance.
The Code also stated it would not cover general insurance, health insurance, whole-of-life and endowment insurance products and annuities and investment life products, with the exception of any component that was considered a life insurance policy.
Scope of the Code
Section 2 of the Code, which outlines its scope, stated it would commence on 1 October 2016 with a transition period running until 30 June 2017 and requires FSC life insurer members to notify the Council of the date on which they have transitioned to the Code.
The same section also outlined when and how the Code would apply to FSC members and their interactions with consumers stating the Code was no longer applicable in the event of a legal dispute outside industry dispute resolution schemes.
…the Code was no longer applicable in the event of a legal dispute outside industry dispute resolution schemes…
“The Code applies to all interactions we [FSC life insurer members] have with you [Policy-Owners] from the date we are bound by the Code, including any interactions relating to a pre-existing claim or complaint,” the Code stated in Section 2.8
A footnote to that clause adding that the Code did not apply to interactions with consumers before FSC members are bound by the Code but any interactions after the Code’s introduction would be covered by the code, even for a pre-existing policy, application, claim or complaint.
The Code would also not apply “…once you commence proceedings in any court, tribunal or external alternative dispute resolution process (with the exception of the Financial Ombudsman Service and the Superannuation Complaints Tribunal” according to Section 2.20.
Authorised Representatives
While consumers are warned in Section 2.5 that their financial adviser may not be covered by the Code, unless the adviser’s licensee has agreed to be bound by the Code, a latter section states that Authorised Representatives of FSC members would fall under the Code in a number of key areas.
Section 4 states that Authorised Representatives of FSC members will receive training covering “…acceptable and unacceptable sales practices and the requirements of the Code” (Section 4.2), and “…have a clearly documented sales philosophy to ensure our staff conduct sales appropriately and avoid pressure selling or other unacceptable sales practices” (Section 4.3).
Authorised Representatives would also have an agreed sales approach and monitoring arrangements in place which would provide analysis of key data such as sales results, lapses, claim declines and complaints” (Section 4.5), and “We will make clear to anyone distributing our policies that pressure selling is not permitted,” Section 4.6 stated.
Industry Response
Association of Financial Advisers General Manager, Policy & Professionalism, Samantha Clarke said the Association was examining the Code and was seeking input from members before making a submission to the FSC. (The closing date for public consultation is 9 September.)
Clarke said the AFA “…would continue to call for the Code to incorporate commitments to advisers as part of the overall life insurance reforms” including a better representation of the role and value of financial advice regarding life risks, levels of cover and replacement comparisons.
The AFA “…would continue to call for the Code to incorporate commitments to advisers as part of the overall life insurance reforms”
The AFA would also be seeking a commitment within the Code for life insurance sales staff to be educated to ensure they understand Best Interest Duty required of advisers and stop offering incentives that may conflict with that duty.
Clarke said it was also important for better sources of data to be made available with the AFA requesting that life Insurers share lapse data with licensees and professional associations on a per adviser basis to assist them in providing better information to ASIC and the government on replacement business, and policy cancellation data be gathered at a granular level.
Financial Rights Legal Centre Principal Solicitor, Alexandra Kelly said the Code was a ‘good first effort’ for the FSC but said it still had to address a number of gaps in its coverage of the insurance sector and timeliness in the handling of claims.
Kelly, who stated that she had seen a number of iterations of the Code and has been part of its steering committee, said life insurance within superannuation was not adequately covered and there was little connection to the role and impact of financial advice on consumers when considering life insurance.
While recognising that the Future of Financial Advice and the proposed Life Insurance Framework would cover advice Kelly said no mention was made of those regulations or their connection to the life insurance sector.
Kelly also expressed concerns around the claims handling stating “the Code needs to be clearer around timeframes for decisions on claims, even when exceptional circumstances apply, so that consumers are not left in limbo”.
She also stated that it would be beneficial for the Code to reach the point that it could become a registered code with the Australian Securities and Investments Commission but that was unlikely to take place before 1 October.
“We would like to see the Code head in that direction and it is good for a first effort. We hope to see it reviewed in the future and also see stakeholders continue to be consulted,” Kelly said.
View the draft of the FSC Life Insurance Code of Practice here.
I am not sure how a Court of law would interpret the FSC code that states, “our member’s code of practice is only relevant if you do not take us to court or commence
proceedings in any court, tribunal or external alternative dispute resolution process.”
I would have assumed that to enable an outside mediator or Court to gauge and benchmark a code of practice, there would need to be one to reference.
Considering most of the problems around Life Insurance advice has come from the big end of town, it is appropriate that the FSC tighten up their own member’s shortfalls,
though the FSC is not qualified to make proper recommendations pertaining to Life Insurance, as they have zero credibility around this area.
Why are the AFA bothering to make a submission to the FSC?
It is the equivalent of letting a fox ( FSC ) look after the welfare of the chickens and making suggestions to the fox on how best to look after them. It is still going to end badly.
All we will end up with, is a complex, convoluted piece of legal wording that protects
the rights of the big banks and Life Companies owned by the banks, while pretending to make improvements for consumers.
If you want to protect consumers, take out of all negotiations, lawyers and the FSC,
then bring in independent life risk specialists who have run their business successfully, have a proven track record and have the best interests of all parties at heart.
Without a profitable Life Industry, no one benefits. The FSC should remember that it is
more than being just about themselves and their members.
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