The Life Code Compliance Committee has called on the Financial Services Council to make a number of changes to the draft Version 2.0 of its Life Insurance Code of Practice, including changes to the approach taken by life companies when reviewing and updating medical definitions for off-sale policies.
The changes recommended by the LCCC have been summarised in a report the independent body has sent to the FSC, in which it states its feedback on the draft Code 2.0 is based on three key principles:
- Enhanced protection for consumers
- Clarity of Code provisions for life companies and consumers
- Enforceability of Code provisions
Updated medical definitions
On the issue of insurers’ commitment to updating the definition of medical conditions, the LCCC notes that in Version 1.0 of the Code, insurers are only required to review medical definitions in policies that are on-sale, with off-sale policies being excluded from this commitment.
Given the significant number of consumers who hold off-sale policies, the LCCC says it has recommended to the FSC that the obligation for insurers to review the medical definitions be expanded to include off-sale policies as well as on-sale policies.
During discussions between the two bodies, however, the LCCC notes in its report that this recommendation was not accepted by the FSC largely because requiring medical definitions to be reviewed in off-sale policies could have material pricing implications for those products, to the detriment of many consumers.
…excluding off-sale policies from any requirement to review the medical definitions may result in consumers losing cover
While the LCCC acknowledged the pricing implications raised by the FSC, it also noted that excluding off-sale policies from any requirement to review the medical definitions may result in consumers losing cover.
The rationale articulated by the LCCC in supporting its position notes that due to the rapid pace of medical advancements, outdated medical definitions often result in unfair outcomes for consumers, especially in scenarios where the outdated medical definition uses a treatment, test or metric that is no longer commonly used in the identification or treatment of that condition: “This would make it less likely for a consumer to successfully claim under the outdated definition,” it concludes.
…insurers should review and update their medical definitions at least every 3 years, regardless of whether the policy is currently on-sale or off-sale
To prevent this from occurring, the LCCC says insurers should review and update their medical definitions at least every 3 years, regardless of whether the policy is currently on-sale or off-sale. It adds the updating of the medical definitions should reflect medical advancements and provide the consumer with a level of cover commensurate with the cover available to the consumer when the policy was purchased.
Currently, Section 2.4 in Version 1.0 of the Code states that only for policies available to new customers will the insurer review all medical definitions at least every 3 years.
The LCCC’s formal recommendation on this issue is that the Code 2.0 be expanded to include additional obligations on subscribers to ensure that medical definitions in on-sale policies, and off-sale policies (to provide the consumer with a level of cover commensurate with the cover available to the consumer when the policy was purchased) are reviewed and updated on a regular basis.
Advisers and other interested stakeholders can click here to access the LCCC’s full response to the FSC’s draft Code 2.0, for which the consultation period has just concluded, which also includes recommendations relating to minimum standard medical definitions, policy design obligations, decision timelines and other claims-related policy commitments including complaints processes around declined claims.