The Life Code Compliance Committee has issued a Notice of Determination which states it expects life companies which outsource services to third party entities, not bound by the Life Insurance Code of Practice, to conduct regular reviews and audits to monitor code compliance and ensure high service standards to consumers are maintained.
The committee says that an investigation into “self reported non-compliance by a code subscriber” [a life insurance company] reinforces the need for subscribers who utilise third party entities not bound by the code “…to be vigilant in ensuring that compliance and process performance responsibilities and expectations are clear”.
The notice says that a subscriber to the Code of Practice self-reported a significant breach of section 6.7 of the Code which requires a subscriber to reimburse any money owed to a consumer when a policy is cancelled, within 15 business days.
It says the breach affected white label products issued by the subscriber but distributed by a third party (Third Party A). The products included life insurance, funeral insurance and accidental death/injury insurance.
The breach was identified as part of the subscriber’s transition of the administration of the products from Third Party A to another third party distributor (Third Party B).
… identified 501 policyholders who had not received a refund within 15 business days of their policy cancellation…
The committee says that as part of the transition, Third Party B conducted a review and identified 501 policyholders who had not received a refund within 15 business days of their policy cancellation. The refunds due totalled more than $11,000.
The statement adds that the subscriber’s review identified that the breach was caused by weaknesses in the premium refund process in use at Third Party A. While the premium refund process was initiated, in the 489 instances identified the premium refund process was not completed and the refund was not processed.
The Life CCC statement says the subscriber identified four system weaknesses in the premium refund process in use by Third Party A:
- There was no follow up process in place to identify and action requests for a refund which was not approved
- Payments which were returned due to incorrect banking details were not followed up
- The End of Month process automatically transferred the returned payments to the premium receivables account which meant that the funds were not identified as amounts owing to the policyholders
- If a consumer made a complaint about not receiving a refund, the process to initiate a refund via the complaints process was independent to the refund process and there was no reconciliation between the two processes
The statement continues that since taking over administration of the products, Third Party B conducted a full reconciliation of the accounts to identify all premiums that had yet to be returned to policyholders.
To prevent the issue from recurring, the premium refund processes and procedures were comprehensively reviewed by Third Party B and updated in July 2019.
“The subscriber has confirmed that the refunds for policyholders with valid payment details were completed by 30 June 2020. In addition, any consumer with invalid payment details is being contacted for new details or sent a cheque.”
As to the key learnings, Life CCC says that while the breach was caused by Third Party A’s inadequate process and procedures, the subscriber in this instance reported a significant breach to the committee.
“ In line with the Spirit of the Code, this demonstrates appropriate recognition by the subscriber of its ongoing responsibility to meet its obligations under the code, even where it has outsourced some activities – in this case, certain aspects of its claims handling process – to a third party.”
The Life CCC and the code
The Life CCC is an independent body established to monitor life companies compliance with the Life Insurance Code of Practice. It states on its website that its purpose is to ensure consistent and high-quality service standards are maintained for the benefit of consumers.
The code was introduced on 1 July 2017 to improve service standards across the life insurance industry.
The website also states that the code is owned and published by the Financial Services Council. It covers the way insurers communicate with consumers, and standards of practice that must be upheld. It sets out a framework for principles of conduct that require insurers to be open, fair, and honest in their dealings with consumers. The code also provides time-frames for insurers to respond to claims, complaints, and requests for information.
