The insurance industry has responded to criticism of the Life Insurance Code of Practice, with an industry group getting to work to address one of its biggest shortcomings – the lack of coverage of super fund trustees.
The Insurance in Superannuation Working Group released a discussion paper last week as a first step towards extending the Life Insurance Code of Practice to all types of life insurance consumers.
The working group is made up of representatives from the Financial Services Council, the Association of Superannuation Funds of Australia, the Australian Institute of Superannuation Trustees, the Industry Funds Forum and Industry Super Australia.
The Life Insurance Code of Practice was launched in October last year. Its objectives are to commit life insurers to high standards of customer service and communication, and increase trust and confidence in the industry.
The principles are clarity and transparency, fairness and respect, honesty, timeliness and plain-language communications.
Policies it covers include term life insurance, total and permanent disability, trauma and critical illness, income protection, business expense cover, consumer credit insurance and funeral insurance.
The code has received plenty of criticism. The Australian Securities and Investments Commission says the code needs to be more formally integrated into the regulatory framework and its application needs to be monitored.
The code is not registered with ASIC and its rulings are not enforceable by courts or tribunals.
ASIC would also like to see the protection offered by the code extended to products such as funeral cover.
Other critics have said that the 12-month time allowed for deciding claims is too long and there are too many exemptions.
A number of groups have criticised the code for not covering life policies sold through super funds. The Consumer Action Law Centre says people with their life insurance in super should have the same protections as people who buy their cover outside super.
The Insurance in Superannuation Working Group says feedback from its discussion papers will inform development of the code.
The paper released last week covers benefit design principles, duplicate insurance and balance erosion risk, claims protocols, transition considerations and premium refunds.
“The scope of this first paper – account balance erosion due to insurance premiums – was selected because the working group believes it is one of the most important areas where change is required and where some immediate corrective actions can be implemented by the industry.”
According to Rice Warner 71 per cent of death cover, 88 per cent of total and permanent disablement and 59 per cent of income protection coverage in Australia is provided through superannuation.
The paper includes a number of proposals for industry discussion. It recommends that there be consistent definitions across funds, to cover situations where cover ceases and recommences in another fund.
It calls for protocols between insurers for the treatment of claims against multiple income protection policies and the establishment of standards for refunding premiums for claims made against multiple policies.
And it recommends that there be a defined maximum premium level that can be charged for automatic insurance (such as MySuper products).
The working group has called for feedback by April 7.
– John Kavanagh