Time is ripe for Life Insurance Code
With major consultation activity underway across senior life insurance executives and consumer groups in the lead up to 1 July 2016, we interviewed Sarah Phillips, Financial Services Council Policy Consultant (Life Insurance) on the FSC’s critical work to help restore confidence in the life insurance industry.
With the onset of major overhauls to the industry off the back of the Trowbridge recommendations (designed to remove conflicts and improve remuneration structures) in late 2014, “the time is indeed right for the Life Insurance Code of Practice” to come into place, says Sarah Phillips.
The first of its kind Code of Practice for the life insurance industry will require mandatory compliance from the Financial Service Council’s (FSC) life insurance members.
It aims to ensure life insurers adhere to high levels of standards in customer service, and to enhance protections where consumers are predominantly vulnerable.
Why is a Code of Practice needed?
The concept of ‘utmost good faith’ is well known in the insurance industry. However, there can be a large grey area in the practical implementation of the doctrine, from the consumer perspective.
This came to light in the panel discussion – Lifting consumer outcomes with a Code of Practice – at the FSC Life Insurance Conference in March 2016.
Sarah chaired the discussion in which Alexandra Kelly, a solicitor at the Financial Legal Rights Centre, presented a number of case studies (see below) from national insurance hotline service ‘Insurance Law Service’.
This service can get up to 100 calls a day from consumers, with the more common ones for Life Insurance relating to issues around surveillance, claims handling, delays and premium increases.
“Currently, there is no effective system of regulation of a number of areas between consumers and life insurers. This can lead to poor consumer outcomes, poor customer service and unnecessarily and prolonged claims practices which are neither beneficial for the consumer or the insurer” says Alexandra, adding that she strongly supports the construction of the Code of Practice.
“Consumers are looking for answers, and these answers often do not exist except within the nebulous concept of utmost good faith.”
John has been on claim for a physical injury for 18 months; he is self-employed in a family business. He’s under the care of a specialist and advised that it’s a matter of time before he will regain function and be able to resume his normal activities. He’s had five claims managers; been re-sent to the doctor for new certificates; and told to attend an Occupational Therapist hours from his home or have a Workplace assessor come around. The insurer now wants to send a forensic accountant to go through his books. He also has to see his GP every month, his GP does not bulk bill and he’s paying $130 per month for a report that says nothing has changed. He feels obstacles are being thrown his way and he says to me “I feel it’s fraud, I’ve been paying these premiums for years. I’ve paid over a $50,000 in premiums and I feel they’ve never intended to pay me.” His payment was due a few days ago but he hasn’t received it. He hasn’t received a call. He wants to know from me whether he has to have a forensic accountant come over and look through the books, or can they just suspend his payments without telling him? His renewal has arrived and the premium has increased by 10%. It says all these things about helping him recuperate and he feels he has gotten nothing.
Jane has Stage Four melanoma. Her insurer paid out the TPD component on her existing policy in her Super. After the payout the same insurer contacted her, a cold call to sell life insurance. She told them about her cancer and said she thought she was uninsurable, and she was assured she would be covered. She instructs us that the sales person told her it would be irresponsible of her not to get cover as she has young children. She received the terminal diagnosis two years later. Now, she is being knocked back, because it is a pre-existing condition.
Process to date
The FSC commenced development of the Code of Practice in August 2015 as a response to the 2014 Trowbridge review recommendations. Development has been collaborative in nature, with regulators, consumer advocacy groups, industry peak bodies, advisors, plaintiff lawyers, Indigenous advocates and the Financial Ombudsman Service all being consulted as stakeholders in its development.
With the initial drafting phase (August 2015 through to late December 2015) complete, development of the Code is now focused on incorporating stakeholder feedback into the standards. This involves workshops with senior executives and subject matter experts of life insurers.
Sarah emphasised that whilst the date of commencement is imminent, a key feature of the Code is that it is “quite flexible in nature”. An example of the flexibility of the development process was demonstrated when the FSC immediately announced the creation of a Steering Group involving consumer groups to finalise the Code, in response to recent negative media attention on claims management practices, and whether the industry should be trusted to self-regulate. To support the direction of the Code, this Steering Group includes the Consumer Action Law Centre and the Financial Rights Legal Centre.
Challenges and Opportunities
They key challenge in constructing a code that can apply to all life insurers has been the complexity of the life insurance industry, in particular capturing the different distribution models and the relationships with intermediaries such as super trustees and advisers, while providing clarity for consumers. Sarah was very clear in saying the Code of Practice is there to protect the end customer/claimant.
The Life Insurance Code of Practice is set to be implemented on 1 July 2016 and will allow life insurers a 12 month transition period to adopt and adapt.
The Code will cover the typical areas of sales practice, underwriting, claims management, support to claimants, and internal complaints process. Sarah expects that the extent of the change impact will vary between insurers, but will be focussed on systems (communications to customers and the timing) and processes (underwriting and claims management procedures).
“This is what directly impacts the customer experience, in particular at claim time when customers are at their most vulnerable,” says Sarah.
There will also be a focus on education of staff, especially front line staff, she says.
From the customer perspective, Alexandra (who is also a member of the FSC Steering Group) says her interest is on a “final Code [that] will … take significant proactive steps to ensure medical examinations are genuinely independent, limit junk insurance products, ban dodgy sales techniques, take real action on definitions and terms, and sort out poor claims handling and investigation practices.
We will also be looking to make sure that any Code of Practice is more than just mere talk … otherwise, it would miss the point”.
The introduction of the Life Insurance Code of Practice will increase the focus required by insurers on delivering a well understood seamless ‘promised’ experience to the end consumer.
Major adaptations may need to occur in the form of increasing transparency, building customer trust, simplifying SOA/PDS to customers and improving current processes to meet the aims of the Code.
Both authors would like to particularly acknowledge Sarah Phillips and Alexandra Kelly who were interviewed for this article, but more importantly for their significant contributions the Life Insurance Code of Practice for our industry.
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