Group insurance should be the subject of an enforceable code of conduct overseen by the Australian Securities and Investments Commission (ASIC) in circumstances where some group policies have been reduced to little more than “junk insurance”, according to the Australian Lawyers Alliance (ALA).
In a submission filed with the Financial Services Council’s (FSC’s) consultation around the life insurance code of conduct, the ALA made clear its belief that the code needed to be legally binding on both insurers and superannuation funds and until this occurred it would not deliver on key issues raised during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
“To be effective, the Code needs to be an enforceable set of rules with broad industry adoption and ASIC approval and monitoring, ALA spokesman, Josh Mennen said.
“Without ASIC’s seal of approval and ongoing monitoring the code will be ineffective in addressing the plethora of problems facing the life insurance industry.”
Mennen said the ALA was particularly concerned that the draft Code developed by the FSC did not demand more transparency and clarity from insurers in their communication and dealings with customers form the point of sale through to claim times noting that the it did not oblige insures to inform customers in prominent terms if their policy no longer met recognised minimum industry standards.
The ALA submission said that consumers were often unable to understand the differences in cover available and to the impact of recent changes to total and permanent disablement (TPD) definitions.
“Over recent years, the quality of TPD definitions in group policies being written have reduced some superannuation funds’ offerings to ‘junk insurance’. That is, collecting premiums from policy holders while providing little to no genuine prospect of insurance coverage in the event of serious injury or illness,” it said.
The ALA submission said this had been demonstrated recently in the REST case study featured in the Financial Services Royal Commission wherein a fund member had premiums deducted from her account for years after her entitlement to claim ceased due to a cessation of coverage triggered by a low account balance and the cessation of work.
It said this was despite the fact that her membership statements noted her extant death and TPD cover