Insurance Code must be binding and enforceable to be effective

13 November 2017
Any final superannuation and insurance Code of Practice must be binding and enforceable if it is to be truly effective in driving a better standard for all parties in the industry, Maurice Blackburn Lawyers said today.

Maurice Blackburn Principal Josh Mennen said that it was essential that the Insurance in Superannuation Working Group (ISWG) guarantee that all parties, including trustees, be bound by any final Code of Conduct for the industry.

“We have long called for any Code of Practice to be binding and enforceable through regulatory oversight,” Mr Mennen said.

“The ISWG appear to be considering watering down the crucial objective that all trustees of regulated super funds be bound by the code from inception – comments today from the ISWG conceding that any final Code may not be enforceable to begin with are concerning.

“To the extent that the concerns raised in submissions have merit, they can and should be resolved to ensure that all trustees are on board when the Code comes into force in 2018.

“As for the concern that by complying with some parts of the proposed Code trustees may be acting contrary to their duty to exercise their powers in the best interests of the beneficiaries (s.52 of the SIS Act), clause 3.14 of the draft code states that “where there is any conflict or inconsistency between the Code and any law or regulation, that law or regulation prevails”.

“In our view, that clause would circumvent any apparent conflict.

“Further, to the extent that the concerns relate to the proposed caps on insurance premiums by reference to a percentage of earnings, clause 4.10 of the draft code also enables trustees to exceed those caps to ensure appropriate and affordable cover. 

“We would support greater flexibility and accountability in the final Code on that issue, but that task should not lead to the sector capitulating and in doing so, making the whole Code, including much-needed claims time limits and complaint handling provisions, non-mandatory for trustees. 

“Such action would only lead to inconsistency in trustee standards through non-participation and renewed calls for regulatory intervention.

“The ISWG process must ensure any final Code from the get-go has teeth or it risks having all the bite of a month-old lettuce. It must enforceable with regulatory oversight and binding.

“For the ISWG to concede today that it is comfortable with releasing a final Code that might ‘start non-binding’ and that if ‘enough sign up from the outset it will become the industry standard’ undermines the basic objective of an enforceable code of conduct,” he said.