Life Insurance Code of Platitudes

Five years’ after its introduction, Col Fullagar questions whether it is platitudinous or has actually delivered on its promise.

The Life Insurance Code of Practice (“the Code”) entered this World with effect from 30 June 2017. At the time it boasted:

“The Code is the life insurance industry’s commitment to mandatory customer service standards. It has been voluntarily developed …… to:

• Promote high standards of service to customers;

• Provide a benchmark of consistency within the industry; and
• Establish a framework for professional behaviour and responsibilities.”

It also made several Key Promises including:

• “We will be honest, fair, respectful, transparent, timely, and where possible we will use plain language in our communications with you.”

Lofty stuff but has the introduction of the Code improved the performance and perception of insurance companies?

In an attempt to gauge the impact of the Code, a Google search was undertaken under “Impact of Life Insurance Code of Practice”. Strangely, nothing came up which from the perspective of some, arguably many, may in fact represent a reasonable search outcome or, if you like, it would be a brave person who could confidently say the life insurance industry is better epitomised by the above statements than it was 6 years ago.

All is not lost, however, because on 1 July 2023 the NEW Life Insurance Code of Practice was ushered in with appropriate fanfare ie Nil. If you were unaware there was a new Code, you are not Robinson Crusoe.

So how does the new Code compare to the old? Well, following the protocol of the 20 October 2017 Money Management article “Life Insurance Code of Practice, Ideal or Idiotic”, this current article will only consider and compare the Introduction and Claim Sections of the original to the new Code.

Beginning with the Introduction, the new Code has given up spruiking high standards, consistency and a framework for professional behaviour. Gone! Consigned to the cutting room floor.

But it has retained the Key Promise of being “ …… honest, fair, respectful …….etc” Hopefully, this time these fine qualities will become more evident.

A significant concern was not long in manifesting itself, however. In Section 1.4 of the new Code came the revelation “This version of the Code will take effect no later than 1 July 2023 and replaces the previous version.” This, and all subsequent emphasises, are mine.

Was there a reason why the principles of the Guarantee of Upgrade within insurance policies could not apply to the Code in so far that the consumer could choose to rely on rights bestowed by either the original or new version, or was the new Code written to subtlety correct problems for insurers that arose out of the original Code? No, never!!!

Enough cynicism; moving quickly onto the Claim Section an overt positive sign was noted. The Claim Section of the original Code had 30 sub-sections whereas the new Code has 67. Might this represent that the new is more than twice as good as the old; let’s see …….

The following additions appear:

• Section 5.9 – covers the change in the definition of disability after 2 years for post-APRA income protection policies ie the claimant will be given the opportunity to start the re-assessment process 3 months prior to the effective date of the change. What happens if the re-assessment takes longer than 3 months or when there is a disagreement about the assessment outcome, is not directly covered – something that will no doubt bring claimants great (dis)comfort;
• Section 5.16 – indicates that the insurer may use information about the claimant that is available online and, if it does so it will obtain the information “in accordance with the relevant laws” – Certainly ground-breaking stuff;
• Sections 5.18 to 5.23 cover insurer responsibilities in regard to Independent Medical Examinations including the insurer must let the claimant know they can ask for a list of different doctors from which to choose and medical examiners will be asked to provide their report within a month of the examination and if they do not do so, the insurer will ask again and tell the claimant … Wow !!
• Sections 5.24 to 5.39 cover insurer responsibilities in regard to Factual Interviews including the interviewer cannot make allegations of fraud unless (of course) the insurer has provided authority for them to do so and the interview will be ended “right away” if it becomes clear the claimant needs a support person and they do not have one ….. More Wow!!
• Sections 5.40 to 5.44 cover insurer responsibilities in regard to Surveillance including surveillance will not continue for longer than 4 months and those undertaking surveillance will not use illegal methods, threaten anyone or cause anyone to do anything they wouldn’t have done otherwise ……… Claimants will sleep well in this knowledge !!!
• Sections 5.45 and 46 indicate that, in regard to claims assessors, the insurer will ensure they have appropriate skills to make objective decisions and their remuneration will not be “directly based on financial targets for claims outcomes” ……. Nailing it !!!
• Sections 5.47 to 5.58 set out insurer timeframes for handling claims whist Sections 5.59 and 60 set out what will happen when the timeframes cannot be met …… The right hand giveth and the left taketh !!
• Section 5.62 is a new one that indicates “If we accept an income related claim and offer you a lump sum settlement instead of future payments, we will suggest you obtain independent financial advice before you make a decision” but the Code falls short of requiring the insurer to be “honest, fair and transparent” about how the lump sum offer was calculated. We couldn’t have people making informed choices, eh !!

And finally …….

• Sections 5.63 to 5.65 state the insurer will pay claims promptly unless they can’t in which case they will tell the claimant they can’t within 5 business days ……. Colour me full of Wonder and Awe !!!

In summary, and with genuine cynic-surprise, while the number of Claim Sub-sections has more than doubled, the extra ones appear to be either:

• very basic common sense;
• encapsulated in law; or
• they are standards for third parties that were under a separate Section in the original Code but have been integrated into the Claim Section in the new Code.

So much for the new being twice as good as the original.

Moving on (again), the new and the original contain the same liberal inclusion of “reasonable” statements such as:

• Section 5.12 – “If you do not agree we need some of this information, we will review our request” and Section 5.15 – “You can ask us to review whether the grounds are reasonable”
• Section 5.13 – “We will ask for the information we reasonably need from you and third parties as soon as possible ………..”
• Section 5.17 – “We will not ask you for a statement from your doctor more often than we reasonably need ……. “

One might theorise that, if the insurer understood and applied the term “reasonable” reasonably, there might be no need for a Code.

If the previous wasn’t sufficient to give rise to worry, there is a significant, material and detrimental change in the new Code. Under the original Code at Section 8.5 the following appeared:

“We will only ask for and rely on information and assessments that are relevant to your claim and policy, and we will explain why we are requesting these …… “

This was one of very few Sections of the original Code that placed a direct responsibility on the insurer. Not only could the insurer only request information relevant to the specific claim and claim event; if challenged, the insurer was required to explain how the information was relevant with the explanation needing to be sufficiently clear that the claimant could make an informed decision to comply or challenge.

Apparently, this proved unworkable for insurers because under the new Code, the above has morphed in Section 5.14 to:

“When we assess your claim, we will respect your privacy by only asking for information we reasonably need to make our assessment. We can fully investigate the history of any condition you are claiming for. We will only try to verify the information you gave us when you applied for cover about conditions that are not related to your claim if we have reasonable grounds. We will explain those grounds and how you can make a Complaint.”

 Now, rather than being required to provide an explanation of “relevance” to the satisfaction of the claimant, the insurer is only required to represent that it has “reasonable grounds”. At that point, if the claimant cannot see or does not agree, they are consigned to the internal and external dispute resolution process; the financial services equivalent of flying economy from Sydney to London sitting next to a farting dog.

To add insult to olfactory injury, the Code now condones the insurer going on a “fishing expedition”.

In the aforementioned Money Management article, an appropriately balanced approach was taken when reviewing the original Code. Be fair, give it a chance were themes than resonated. Those themes long since disappeared.

With the new Code, came a Press release that said “ …. the changes provide enhanced consumer protections in the life insurance sector. The new code introduces more than 50 new protections for consumers across all aspects of their interaction with life insurers ……. the new Code and includes vital safeguards for customers during periods of vulnerability, financial hardship, or when experiencing mental health conditions.”

The new Code is more than 50 pages long so, even if the above was factual, this is around one new protection per page reduced by the number of original protections that have been removed. Further, including safeguards is sweet but preventing insurers from “reasonably” evading them would be sweeter.

Notwithstanding the removal of commitments to high standards, consistent conduct and professional behaviour, is the new Code likely to make a material difference to either or both of the conduct of insurers and the protection of the consumer? Nup !!

As per the title of this article, in the Sections examined and in the miserable opinion of the writer, the new is little more than a Life Insurance Code of Platitudes.

If you want to provide protection for victims, do you ask the perpetrators to pen a Code or do you at least have an initial draft compiled by the victims?

PS – The comments within this article regarding the dispute resolution process reflect the experience of the writer that the process can be non-inclusive, bureaucratic and difficult to manage. These comments should not be taken as a reflection on those working in dispute resolution.

Col Fullagar is the principal of Integrity Resolutions