The joint parliamentary committee’s report looking into the life insurance industry, released recently has made it clear – major reforms are on the way.
The parliamentary committee was established to inquire into the life insurance industry following the scandals over the past several years that saw legitimate claims denied. The committee was mostly critical of the way that life insurance is sold by brokers and advisers but super funds also came under the spotlight.
The peak body for general insurance brokers, NIBA is carefully looking at the report as it has implications for general insurance too.
The committee has taken a broad view of the life insurance industry covering direct, retail and group life insurance products including life cover, total and permanent disability cover, trauma cover, and income protection.
Default insurance Super funds offer a “default” level of death and also total and permanent disability (TPD) cover to their members without the member asking for it. It’s in favour of continuing the automatic “default” cover provided by funds to members, but wants funds to make it easier for members to opt out of the insurance.
The committee’s recommendations include stronger legal rights for consumers and, crucially, a requirement that insurers keep their medical definitions up-to-date as outdated definitions have been used by some insurers to deny claims.
Millions of Australians who have the insurance through their super – who may not even know they have it – will also benefit not just those who buy life insurance through a broker or adviser. The committee wants regulators to audit super funds to detect any payments or incentives that flow between a fund and the insurer it uses to cover its members as there are concerns that some members’ retirement savings are eroded by the life insurance premiums coming out of their accounts.
The committee’s report has focused on areas where substantial changes are required to ensure the life insurance industry is held to account in relation to:
• effective consumer protections and industry codes of practice;
• the transparency of remuneration, commissions, payments and fees;
• the provision of advice in the best interests of consumers;
• group life insurance arrangements that do not disadvantage certain groups of
• appropriate access to personal medical and genetic information; and
• fair claims handling practices.
The committee has also recommended that the current exemption under the Corporations law that excludes certain claims handling activities by life insurers from ASIC’s oversight should be reviewed.
The committee considers that life insurance plays a vital role in Australia’s social and economic life, and that the recommendations made in this report will help to improve the transparency, accountability, and effectiveness of the life insurance industry.