Law reform is needed to bring life insurance claims handling more directly within the regulatory scope of the Australian Securities and Investments Commission (ASIC).
The recently retired ASIC chairman, Greg Medcraft has used a detailed answer to Questions on Notice from the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry to argue for law reform to further empower ASIC.
“…insurance products are exempted from some of the consumer protections that apply to all other financial services,” Medcraft’s response said.
It then went on to itemise those exemptions as applying to the provisions that protect consumers from unfair contract terms, and an exemption from regulation for insurance claims handling activity “which means that claims handling is not legally required to be conducted efficiently, honestly and fairly”.
“Furthermore, where insurance-specific protections exist (such as the obligation for insurers to act with utmost good faith), ASIC's powers are limited,” the response said. “We consider that law reform is required to address these matters.”
The ASIC response said that while the consumer protections for financial services under the ASIC Act were generally consistent with the equivalent protections in the Competition and Consumer Act, ASIC could not take action in relation to unfair contract terms in insurance contracts due to an exemption in the Insurance Contracts Act.
The ASIC response said that in recent years, additional consumer protections had been legislated to improve consumer outcomes across the board, not just in relation to insurance.
“ASIC considers it important to have effective consumer protection laws applying to financial services and products, and that, unless there is good reason, equivalent protections should apply to all financial products,” it said. “Our recent work in reviewing life insurance claims handling and add-on insurance products sold through car dealerships has resulted in ASIC forming the view that law reform is required to ensure good consumer outcomes in the insurance sector.”