The Parliamentary Joint Committee (PJC) on life insurance is unconvinced of the industry's ability to sufficiently self-regulate and is recommending a co-regulatory approach.
The PJC on Corporations and Financial Services for the Life Insurance Industry said in its final report that it welcomed the industry’s two new codes of practice, which should be replaced by a single government-backed code. This would also give the code compliance committees power to determine whether breaches occurred, provide genuine remedies for code breaches, and give the Australian Financial Complaints Authority (AFCA) ability to enforce compliance through determinations.
The PJC criticised superannuation trustees' and life insurers' current lack of action when it came to duplicate insurance within group superannuation, saying the levels were unacceptable. The Financial Services Council (FSC) has responded by saying many of the PJC’s recommendations are either already included in the FSC Life Insurance Code of Practice or will be included in the second iteration.
Martin Fahy, Australian Superannuation Fund Association (ASFA) chief executive, said the code has some higher standards in place than those proposed in the PJC report. ASFA has also recommended the Royal Australian College of General Practitioners (RACGP) and the FSC collaborate to prepare standards for requesting and providing relevant medical information.
The PJC said that the way Approved Product Lists (APLs) are currently constructed can lack transparency and generate conflicts of interest. The PJC are not convinced that a draft APL standard proposed by the FSC addresses the full range of identified concerns.
The report said affiliations should be disclosed when recommended and the customer should be offered a comparison with non-affiliated products.
There is support for unrestricted APLs that give financial advisers autonomy to use their experience, knowledge, and judgement to recommend the best solutions for clients.
If the FSC does not act to amend its standard, the government may need to intervene. The FSC has said it doesn’t support the extending of the Banking Executive Accountability Regime (BEAR) to life insurers. They believe BEAR was specifically designed for Authorised Deposit Taking Institutions, and the industry has not been sufficiently consulted about the proposal.
Other recommendations include:
- Improving the standards on the treatment of customer medical files
- Rationalisation of legacy products
- The value of opting out of insurance in superannuation
The PJC said the protection available to life insurance customers should be aligned with Australian Consumer Laws. Consumers should be confident in asserting and understanding their rights, however the inconsistent application of consumer protection laws creates inappropriate incentives for industry participants.