Breach reporting and DDO drive up life code breaches

Mike Taylor

Managing Editor/Publisher, Financial Newswire

17 March 2023

Nearly 200,000 life insurance customers were affected by breaches of the Life Insurance Code arrangements in what represents an upsurge driven in large measure by regulatory change including breach reporting the design and distribution obligations (DDO) regime.

Latest report issued by the Life Code Compliance Committee (LCCC) pointed to a significant upturn in the number of breaches reported but, at the same time, revealed that they had been driven by the changes to the Australian Securities and Investments Commission (ASIC) definition of a “complaint” and DDO.

“Subscribers (life insurers) reported a combination of factors they believe have resulted in the increase in complaints,” the LCCC report said.

These include:

• Changes to the definition of a “complaint” under the Australian Securities and Investments Commission (ASIC) Regulatory Guide 271 (RG271) which requires reporting of all complaints resolved within five business days (in effect from 5 October 2021).
• New requirements for Product Design and Distribution Obligations (DDO) under ASIC’s Regulatory Guide 274 (RG274) which requires third-party distributors to report complaint-related information to life insurers (in effect from 5 October 2021).

However, the chair of the LCCC, Jan McClellan said that the impact of the breach reporting and DDO requirements should not be used as an excuse for the life insurers not to try to do better.

“While changes to regulatory requirements may have contributed to the increase life insurers could do more to mitigate reasons for complaints,” she said

“Changes to ASIC requirements meant complaints were defined more broadly and subscribers had to record and report more instances. No doubt this was a factor. But, fundamentally, focussing on good practices that produce good outcomes for consumers will go a long way to mitigating issues,” McClelland said.

“Meeting a customer’s needs with a product and service while complying with Code obligations is generally going to see a subscriber avoid complaints, no matter how broadly they’re defined,” she said.

The LCCC report said all distribution channels saw an increase in reported complaints in 2021-22 across direct third party, retail, direct and group.

However, it noted that complaints about cover distributed via the retail channel received the most complaints (58%) of the total followed by direct (30%).