Lawyers have welcome the Productivity Commission's recommendation for a binding and enforceable code of conduct for the life insurance industry, with today's report a further indictment on the significant shortcomings of the current code in delivering a better standard for the industry.
Maurice Blackburn Principal Josh Mennen said the Commission’s report had made clear that the code governing insurance held within superannuation must meet ASIC’s definition of ‘enforceable’ – an overdue and obvious reform that the industry has so far resisted across both the Insurance in Superannuation Voluntary Code of Practice and the Financial Services Council’s life insurance code of practice.
“The recommendation for a binding and enforceable code of conduct is again another wake-up call to the life insurance industry that ASIC oversight and enforcement is critical to ensuring any code can do the job required,” Mr Mennen said.
“We have made this point for a number of years as have many others, yet despite all of the scandals and the Royal Commission the industry has so far failed to deliver this reform – a position that flies in the face of multiple inquiries and government recommendations and undermines public confidence in the industry’s commitment to delivering a rigorous code.
“The code as it stands currently – voluntary, lacking any sanctions for breaches and lacking any oversight from ASIC or a code administrator – is patently inadequate.
“The Financial Services Council’s life insurance code of practice also falls well short and recently proposed amendments fail to deliver proper sanctions or regulatory oversight despite the hundreds of reported code breaches for claim processing delays.
“The current life insurance code review process does show some progress being made to improve the code, but there are still many gaps that remain including most critically that the code remains non-binding, non-enforceable and lacks any ASIC oversight.
“In light of the many problems that exist within the industry it is evident that ASIC must have an active role in monitoring any codes of conduct or practice, as it does for the banking code of practice which is ASIC approved.
“That’s why we also welcome the Commission’s recommendation today that a joint regulator taskforce be established to monitor and direct enhancements to strengthen the code to meet ASIC’s definition of ‘enforceable’, and to give ASIC an enforcement role as part of this.
“We also welcome the suggestion that both ASIC and APRA should be members of that taskforce, with ASIC taking a leading role and we call for a similar approach to be taken with respect to the life insurance code of practice also.
“With the Royal Commission report due shortly, that will touch on many of these issues, the industry can no longer put its head in the sand in resisting a greater role for the regulator in the oversight and enforcement of its codes of conduct, and today’s report is another endorsement of the need for such an approach urgently,” he said.
“Superannuation: Assessing Efficiency and Competitiveness”, Productivity Commission Inquiry Report Overview p41:
Finally, the voluntary code of practice for insurance in super needs to be bolstered and turned into a binding and enforceable set of rules with broad industry adoption. ASIC and APRA should work together to monitor and report on adoption and implementation of the code, and to direct the industry to strengthen the code’s provisions such that it meets ASIC’s definition of an enforceable code of conduct. Standardising key definitions and provisions is a priority, but this cannot be left to the industry alone. The industry should be given a hard two-year deadline to make the bolstered code binding and enforceable on all signatories, at which point adoption of the code should become a licence condition for all funds that offer insurance.
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