The life insurance industry’s self-regulated code of practice is failing to protect consumers and warrants serious scrutiny by the banking Royal Commission, Maurice Blackburn Lawyers have warned in a submission lodged today with the Royal Commission.
Maurice Blackburn Principal Josh Mennen said the industry had been given ample opportunities to scrutinise and regulate itself through the code of practice, but it was obvious it was inadequate and failing to hold the troubled industry to account.
“The life insurance code of practice was only implemented on 1 July 2017, but already from our firm alone we have reported over 700 breaches of this code in that short period and we have outlined the insurers who are the main culprits for these breaches – the worst being AIA, CommInsure and TAL - in our submission today,” Mr Mennen said.
“The industry set itself strict timelines with respect to processing claims and responding to complaints, but as our clients’ experiences show numerous insurers have completely ignored these timeframes despite being signed up to the code.
“A Joint Parliamentary Committee report released only last week also identified fundamental flaws in industry-regulated codes and a lack of adherence to these – the industry is all talk when implementing their codes, but the reality is the codes don’t have teeth and are doing little to drive better standards.
“The industry can’t brush off its non-compliance with its own code as it has sought to do by calling the claim assessment time limits ‘aspirational’. It must be held to account to ensure sick and injured insurance claimants are getting fair and reasonable treatment.
“Meanwhile, the voluntary insurance in superannuation code of practice is shaping up to be just as disappointing.
“It is unenforceable, has no independent administrator and as an extension of the life insurance code of practice, it has inherited all of its flaws. Those super funds who do decide to sign up aren’t required to comply with the code until 2021.
“That’s why we have today asked the Royal Commission to recommend that codes of practice be required to have ASIC approval and enforceability, with robust sanctions for failure to comply.
“We have also asked the Royal Commission to give consideration to ensuring enforceable codes enshrine standard definitions, with clear timeframes for processing claims and setting out remedies and sanctions for code breaches.
“Our submission also highlights a serious concern that insurers remain incentivised to delay claims for as long as possible – a completely unacceptable practice that happens because insurers are able to invest assets for returns that well exceed any penalty interest they have to pay on an unreasonably delayed claim.
“APRA’s life insurance statistics for the December 2017 quarter show that annualised return on net assets for the industry were 10.9 per cent, yet the penalty interest rate is currently only around 5.58 per cent.
“It’s obvious that while that anomaly exists insurers will continue to get a windfall for being unreasonable in assessing genuine claims,” he said.
Maurice Blackburn has also called for the following in its Royal Commission submission:
- That enforceable codes should be binding between all relevant parties;
- That codes be developed in a fair and transparent manner with genuine consultation across the industry;
- That ASIC’s regulatory guide for time limits on internal dispute resolution be reflected in codes;
- That codes regulate the conduct of insurance companies and regulators in assessing claims; and
- That the exemption for life insurance be removed from unfair contract and other consumer protections provided under Australian Consumer Law, to ensure that general and life insurance contracts are also covered.
Mr Mennen said the firm’s submission also called for regulatory reform of the mortgage lending market, including scrutiny of interest-only loans and the need to remedy timeframes to ensure the victims of unfair lending could bring compensation claims.
“The current legislative framework that provides consumers with recourse over poor lending practices means that complainants can often run out of time to achieve recourse and bring a claim, by the time they actually suffer loss,” Mr Mennen said.
“In our submission we are urging the Royal Commission to take a look at this issue, including making legislative amendments to clarify that a cause of action can run from the date any losses are realised, rather than only commencing from the time a loan was taken out.”
Maurice Blackburn’s submission also calls for amendments to the Bankruptcy Act to ensure that consumers forced into bankruptcy by an irresponsible lender don’t lose their cause of action as is currently the case, and for the implementation of a Compensation Scheme of Last Resort with regulatory oversight to assist consumers seeking recourse from financial service providers who have become insolvent.
A copy of Maurice Blackburn’s submission to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is available here.