Financial Services Regulation

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Unravelled: Changes to the FSC Life Insurance Code of Practice

20 December 2018

Written by Overseas Practitioner Craig Dewar and Summer Clerk Moussa Mourad

Proposed changes to the FSC Life Insurance Code are afoot and the deadline for comments is fast approaching. The present review of the Code is designed to improve standards in product design, sales, underwriting, customer service, complaints and claim handling

Among the more significant changes, the revised Code is proposed to apply to superannuation fund trustees holding life insurance policies covering their members. The changes for superannuation trustees in large part mirror the Superannuation Voluntary Code of Practice, and include measures aimed at making the cost of cover more affordable for members.

Other proposed changes to the Code include:

  • Plain English language – the requirement that plain language is used in the general asking of questions in the application process and in exclusion clauses.
  • Additional disclosure – the requirement to ensure that consumers are given the appropriate information and disclosures to ensure they completely understand the insurance products they are purchasing, especially for consumer credit insurance (CCI) and direct sales of life insurance. In the case of CCIs, the CCI must have a separate application process to credit products and it must be made clear that the CCI has no bearing on the approval of the credit product.
  • Funeral insurance – changes to the funeral cover include:
    • giving at least 30 days from the date that the first premium is paid for consumers to change their mind about buying the policy and enabling consumers to get a full refund on the premium paid;
    • allowing consumers to choose level premiums, and requiring additional disclosure about stepped premiums and their future increase; and
    • disallowing the promotion of funeral insurance to people under the age of 40 and requiring additional disclosures as to the appropriateness of funeral insurance to be made to consumers under 40.
  • Pressure selling – the requirement to ensure that products are not sold using pressure selling or coercion.
  • Family history – restricting family history requirements to be only about first-degree blood relatives and not to ask for relatives' names or dates of birth. The changes also restrict the use of information supplied by a person other than the consumer in circumstances where a family member has previously taken out a policy with the insurer.
  • Genetics testing – everybody will be able to take out insurance without disclosing an adverse genetic test, up to $500,000 for life and total and permanent disablement insurance; $200,000 for critical illness/trauma; and $4,000 a month for income protection.
  • Reasonable grounds – the requirement that information is only requested if there are reasonable grounds for doing so. This includes the provision of medical disclosure.

The draft code is open for consultation until 12 January 2019 and, according to the FSC Medial Release of 12 November 2018, the FSC seeks to have the updated Chapter 1 in force from 1 July 2019; and Chapter 2, which includes the changes to superannuation trustees, in force by 30 June 2021.

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