Utmost good faith principles embodied in the Life Insurance Code of Practice

10 October 2017

One of the ways the life insurance industry has responded to the increased focus on its obligations to act in good faith, and in particular claims handling procedures, is with the implementation of the Life Insurance Code of Practice (the Code).

In 2013, amendments were made to the Insurance Contract Act 19841  which gave greater importance to an insurer’s duty of good faith and, in the context of life insurance, its practical application to life insureds, being third party beneficiaries to a contract of life insurance.

The Code is a relatively new industry initiative, which took effect from 1 July 2017. Several provisions of the Code reflect life insurers’ longstanding obligations to act with utmost good faith – which indeed is referred to expressly in the Code’s opening Introduction and Objectives section.  Some of these provisions include, for example:

  • Disclosure obligations (Clause 3) which, apart from ‘procedural fairness obligations’ during the claims assessment process, requires disclosure of such matters as all relevant exclusions, cooling off and waiting periods. The Code includes an index of minimum standard medical definitions which provides for standardised meanings for conditions which have, in the past, had the potential to be ambiguous and fall short of consumer expectations, such as “stroke”, “cancer” and “heart attack”;
  • How insurers must deal with consumers who may require additional support (Clause 7), such as consumers with a disability, who have a non-English speaking background, or consumers who may otherwise have difficulties understanding complex insurance policies and insurer procedures; and
  • The manner in which claims should be assessed (Clause 8) such as how information and evidence is gathered (including the use of surveillance), timeframes for reaching determinations and the provision of reasons for determinations.

Apart from setting out various principles which reflect life insurers’ broader obligations to act with utmost good faith, the Code also establishes the Life Code Complaints Committee (LCCC), which is comprised of a consumer representative, an industry representative and an independent chair.  The Committee has the power to receive and investigate complaints, as well as to impose sanctions for breaches of the Code.

Some of the sanctions include requiring an insurer to take particular rectification steps, corrective advertising and publication of the insurer’s non-compliance with the Code. If an insurer does not comply with a sanction imposed by the Committee, it is regarded as a breach of FSC Standard 1 and attracts potential disciplinary action from the FSC Board.

ASIC has suggested that, as part of the ongoing development of the code, the industry could consider seeking approval under ASIC’s Regulatory Guide 183, Approval Financial Service Sector Codes of Conduct, as a further signal to consumers that the Code provides a set of enforceable rules, reflecting industry commitments in which they can have confidence.

The industry has actively embraced the introduction of the Code and we will no doubt see further developments on whether ASIC approval is sought for the Code, as well as in the application of the Code.

This article was written by Matthew Harding, Partner and Sylvia Quang, Senior Associate.

1 Amendments to Section s11, 13 and 14A of the Insurance Contracts Act 1984 which took effect from 28 June 2013.

Subscribe to HWL Ebsworth Publications and Events

HWL Ebsworth regularly publishes articles and newsletters to keep our clients up to date on the latest legal developments and what this means for your business.

To receive these updates via email, please complete the subscription form and indicate which areas of law you would like to receive information on.

Contact us