Submission to Life Insurance Code of Practice

The Financial Services Commission has written a Draft Code of Practice for the Life Insurance industry. Consumer advocates have written a joint submission in response which argues that the Life Insurance Code of Practice (LICOP) as currently drafted is not a best practice standard and has not fulfilled the expectations and obligations set by Government. The current draft does not require life insurers to meet any standard that is not already required of them by the law. It does not meet the minimum standards of enforceability set by ASIC. The draft Code includes a number of sections dictating how consumers should be behave rather than self-regulating the industry’s own conduct addressing consumer issues, concerns and problems with industry practice. The current draft also makes no attempt to address the problems with churn and poor sales practices, issues that initiated the process that ultimately led to the development of this draft LICOP. Unless substantial changes and additions are made, consumers will have minimal confidence in the Code and our organisations will not be able to support it. The final Code should also set enforceable, best practice standards for advisers and licensees.

We believe that life insurers should make the following specific commitments to improve consumer confidence in the industry (additional recommendations are in our submission):

1. Life insurers should address consumer concerns about someone selling or distributing life insurance products.
2. Life insurers should commit to provide to policyholders:
   • projections of likely costs of the premium
   • information and contact details of the subscriber’s internal dispute resolution and complaints process;
   • in the case of replacement policies, information on what a consumer may potentially be losing and specific information on pre-existing conditions
3. Contact via a letter, email or text message should be sent on the same day that a cancellation occurs. The Code should also require life insurers to offer financial hardship assistance if a customer misses a payment, and be prepared to offer reasonable assistance if it is requested.
4. The life insurance industry should:
   • commit to improving the prominence of warnings and the risks and consequences of replacing a policy
   • commit signatories to investigate reported or suspected mis-selling of replacement policies
   • report where they uncover wrongdoing; and
   • ensure any customers who have suffered a loss are compensated.
5. The Code should include directions to the IDR and Complaints process on making a decision. For those policyholders experiencing financial difficulty whilst an investigation is taking place life insurers should commit to paying a portion of the income protection payments.
6. Life insurers need to commit to training staff on how to engage appropriately with vulnerable consumers.
7. The Code needs to include a commitment to fully inform consumers of the tax and legal implications of a lump sum payment.
8. The Code should commit life insurers to using only licensed investigators and more specific standards be set for investigators to address our concerns with respect to investigations including poor communication practices, aggressive or unethical investigator behaviour and unreasonable requests for documentation.
9. The Code should commit insurers to addressing the high lapse rate of funeral insurance products; immediately stop sales of funeral cover for people under 18 years old; stop allowing CCI to be sold through the ‘add-on’ sales technique; and not allow products to be sold through pressure sales techniques.