Life insurers canvas law changes to address financial abuse

The law as it currently applies to life insurance policies mitigates against life insurance companies being able to protect the victims of domestic violence and financial abuse, according to the Council of Australia Life Insurers (CALI).

CALI has pointed to life insurance being different to other insurance offerings because it is a guaranteed renewable product that cannot be cancelled as long as the premiums are paid.

It told a Parliamentary Committee inquiry that this is in contrast to many other insurance products which are renewed on an annual basis.

In doing so, CALI said it had identified regulatory examples where issues arose with respect to domestic violence and financial advice and pointed to there being scope for change.

“These regulatory settings are in most cases important customer protections to ensure the rights of policy holders. However, given the impact they are having on people affected by financial abuse and family and domestic violence, we think it is imperative that industry and Government work together to enable life insurers to provide the appropriate protection to victim-survivors of family and domestic violence and financial abuse, while complying with the law,” CALI told the Joint Parliamentary Committee on Corporations and Financial Services.

Detailing the current setting, CALI said there was “a very limited ability for life insurers to change terms and conditions once a policy is written”.

“As a result, life insurers are not able to withdraw products from suspected perpetrators of financial abuse (as can sometimes be done in other parts of the financial services sector),” it said.

“The law provides particular rights and protections to the policy owner of a life insurance policy. Privity of contract means that only the policy owner has the power to instruct changes to the contract (including, where available, the nomination of third-party beneficiaries), permit it to be assigned or order that it be terminated,” it said.

“Where there are joint policy owners, the owners must agree to any changes to, or assignment or cancellation of, the policy. A person who is insured under a contract but who is not a policy owner has no power to do these things. This can create issues in situations of financial abuse as there is no mechanism that triggers a reassessment of the policy,” the submission said.

“In Australia the law specifically provides that there is no requirement to have an insurable interest in the subject matter of the life insurance contract when it is entered into. There is also no statutory basis (and usually no contractual basis either) for compelling the cancellation or assignment of an insurance policy where the policy owner has ceased to have an insurable interest in the victim’s life. This means when a couple shares debts and decide to take out a joint life insurance policy, if they decide to separate or divorce there is no option for one to remove themselves, spilt the joint policy or cancel the policy without the consent from both people.”

“As financial products and insurance policies, various legislative provisions require notifications to be given to policy owners in respect of the policies that they hold. Reconciling these requirements with the need to protect a victim-survivor’s location and other details from an alleged abuser, can cause particular difficulties in the case of joint and cross-policy ownership. For example, a victim-survivor and their alleged abuser may be joint policy owners and required to be notified of certain matters arising under or in relation to the policy. This can result in abusers receiving the address and other personal details of a victim-survivor from their life insurer.”