So what is next for the Code? When ratified the Code will provide a framework by which industry participants will standardise their conduct with policyholders; it will also become an effective marketing tool for those life insurers that agree to be bound by it. The Life Code Compliance Committee will operate as another level of regulatory oversight for the industry.
Last year, the Financial Services Council (FSC), as the peak representative body of the Australian life insurance industry, determined that it would develop, with its members, the Life Insurance Code of Practice (the Code). The FSC released a draft version of the Code for a period of public consultation, which ended on 9 September 2016.
It is expected that the FSC and its members will shortly ratify the Code with the transition period to full compliance ending on 1 July 2017. On ratification it will become an important new element in consumer relations for the life industry. The Code will have a similar impact on the conduct of life insurance business in much the same way that the General Insurance Code of Practice has impacted the general insurance industry in Australia.
It is likely that, similar to the General Insurance Code of Practice, the Code will not only provide a framework by which industry participants will standardise their conduct with policyholders, but it will also become an effective marketing and promotional tool for the industry and for those life insurers that agree to be bound by it (including individual life insurers that are not members of the FSC but will agree to be bound by it in the same manner that general insurers that are not members of the Insurance Council of Australia have nevertheless agreed to conduct themselves in accordance with the General Insurance Code of Practice).
Life Code Compliance Committee and breaches
An interesting point to consider is that the Code will establish a breach review process overseen by the newly created Life Code Compliance Committee (LCCC). Appointment to the LCCC will include a representative from the industry, a consumer representative and an independent chair and we assume will be done in accordance with the LCCC’s charter which has not been publicly released. The LCCC could ultimately have a significant impact on the industry, so who is appointed to the LCCC and the evolution of its impact will be interesting to observe over the first few years.
The LCCC will have the power to determine whether breach allegations are better determined through an insurer’s internal complaints process or whether the LCCC will consider the breach. We suspect that FOS’s determinations will impact the LCCC and ultimately the development of the Code.
There has been no indication, at least publicly, whether the Code will be issued as a standalone document or whether an interpretive or explanatory guide will also be provided. Such a guide may provide assistance in interpreting how the Code will be applied. For example, Section 13.4 of the Code requires notice of a significant breach to be provided within 10 business days of the life insurer becoming aware of the breach. Will the test of awareness be the one that currently applies with respect to AFSL material breaches? Or will the LCCC seek to develop its own determination of what is awareness?
Therefore, while the Codes is essentially completed and will be finalised shortly, the industry and consumers will have to adjust to operating within another level of regulatory oversight. The industry will need to manage the practical impacts of the Code and change, where required, its internal processes to meet the new environment.
This article was written by Mark Kimberley, Partner and Jason Stevens, Partner.