Insurers Report Code Breaches But No Sanctions


The body tasked with enforcing the FSC’s Life Insurance Code of Practice (LICP) made no sanctions against any life insurer in its first year, despite being aware of 25 breaches of the Code and receiving more than 700 breach allegation referrals.

The Life Code Compliance Committee released its inaugural Annual Report for 2017-2018 stating that while it had received 23 notices of self-reported breaches from FSC Life Insurance members and identified two further cases, none of the matters warranted a sanction.

“For the 2017-18 reporting period, the Committee did not impose any sanctions as no events occurred which gave rise to the use of its sanction powers,” the report stated.

It added that sanctions were only imposed “…after a subscriber has failed to implement the corrective measures to address a Code breach within the time-frame agreed” and “…where the Committee fails to reach agreement in a reasonable time with a subscriber about the corrective action to be taken to address a Code breach”.

“…the Committee did not impose any sanctions as no events occurred which gave rise to the use of its sanction powers”

Of the 23 self-reported breaches, the Committee confirmed 17, found there was no breach in three matters and was still assessing three more at the end of the financial year.

The self-reported breaches were mainly concerned with policy changes and cancellation rights, including the obligation to provide consumers with an annual written notice before the policy anniversary, and legacy IT systems and products that did not comply with the Code.

The Committee also raised concerns over how FSC Life Insurance members were classifying and reporting breaches of the LICP, stating the members made the decision as to what constituted a ‘breach’ or ‘significant breach’, and under what time-frame they reported them.

The report stated that under the LICG breaches were considered significant if they were frequent relative to previous breaches, impacted the ability to provide services, or there was potential or actual financial loss.

The report added that FSC Life Insurance members who had subscribed to the LICP were required to report significant breaches within 10 days of identification but “…a peculiarity of the Code is that it does not allow the Committee to form a view as to whether a breach is a significant breach; instead, subscribers alone are relied upon to form this view”.

“This approach is inconsistent with other industry codes. To better fulfil its purpose, the Committee considers it should have the authority to decide whether a breach is classed as significant. The Committee has recommended that the Code owner, the FSC, review how significant breaches are defined under the Code,” the report noted.

The LICP came into effect in October 2016 (see: FSC Life Code to Focus on Consumers First, Advisers Later) and became mandatory on 30 June 2017 (see: FSC Life Code Commences With Finalised Trauma Definitions), and as at 30 June 2018 there were 26 FSC Life Insurance members who were subscribers to the Code.