Life Insurance Code 2.0

Ann-Marie_ColemanThe Financial Services Council has released a draft of the new Life Insurance Code of Practice (Code) for public consultation. This follows scrutiny of the industry, including sales and claims practices, during the round 6 hearings at the Financial Services Royal Commission.

The draft Code builds on the existing code and is designed to lift standards in product design, sales, underwriting, customer service, complaints and claims handling. Chapter 1 places obligations on life insurance companies and Chapter 2 places obligations on superannuation trustees where life insurance is in superannuation. Read the rest of this entry »

ASIC proposes updates to organisational competence requirements for advice licensees

Ann-Marie_ColemanASIC has proposed updates to Regulatory Guide 105 Licensing: Organisational competence (RG 105) that would see advice licensees required to have a responsible manager (RM) that meets a new Option 6 knowledge and skills requirement. Consultation Paper 305, released yesterday by ASIC, includes updates designed to support the professional standards reforms, which aim to lift the education, training and ethical standards in the financial advice industry.

For the purpose of the Consultation Paper, ‘advice licensees’ are licensees who provide personal advice to retail clients in relation to financial products other than basic banking products, general insurance products and consumer credit insurance. This means licensees who provide personal advice in relation to life insurance products will be captured by the proposal. Read the rest of this entry »

New mandatory reporting requirements on life insurance claims

Ann-Marie_ColemanThe Australian Prudential Regulation Authority (APRA) has released the Life Insurance Reporting Standard LRS 750 Claims and Disputes with the aim of enhancing the consistency and quality of life insurance data. The data will be published through a program established jointly last year by APRA and the Australian Securities and Investments Commission (ASIC).

With the introduction of the new reporting standard, it is now mandatory for life insurers to report data on claims and disputes. APRA and ASIC have published data in the past on life insurance and claims, however, participation was not mandatory an insurers did not interpret the reporting requirements consistently. It is hoped that the new reporting standard delivers enhanced transparency and accountability which will assist consumers in making informed decisions about their life insurance. It is also hoped that the new standard will help regulators to identify emerging problems, assess product value and take action to improve consumer outcomes. Read the rest of this entry »

ASIC corporate plan – what’s on the horizon for insurance

Ann-Marie_ColemanASIC has published its Corporate Plan for 2018-2022. The plan articulates the regulatory actions ASIC proposes to take over 2018-2019.

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ASIC reviews insurance cover through superannuation

Ann-Marie_ColemanFollowing the release of its report into direct life insurance (see our blog entry on that here), ASIC has also released a report on the provision of insurance cover through superannuation (Report 591). Generally, superannuation funds offer their members one or more types of life insurance (such as life cover, TPD cover and income protection cover). 70% of all life insurance policies in Australia are held through superannuation funds.

ASIC’s review of 47 superannuation trustees focused on the following:

  • Insurance claims and complaints handling.
  • Disclosures about insurance (including about cover ceasing).
  • Insurer rebates paid to trustees.
  • Whether members were defaulted into demographic categories that resulted in higher premiums.

Read the rest of this entry »

ASIC’s review of direct life insurance – the results are in

Ann-Marie_ColemanLate last week, ASIC released Report 587 on the sale of direct life insurance, revealing that its has found that sales practices and product design are leading to poor consumer outcomes. Direct life insurance products are sold within a general advice or no advice model.

Throughout 2017-18 ASIC has conducted a multi-stage review of the sale of direct life insurance, including term life, accidental death, trauma, total and permanent disability and income protection insurance. The release of Report 587 follows action taken by ASIC earlier this year against ClearView Life Assurance Limited that resulted in customer refunds (see our previous blog entry).

ASIC’s review found that consumers are cancelling their life insurance policies sold direct in very high numbers, with:

  • one in five policies cancelled in the cooling-off period;
  • one if four policies (that remained in force beyond the cooling off period) cancelled within 12 months; and
  • three in five policies cancelled within three years.

Read the rest of this entry »

New EDR scheme established for financial services complaints

Ann-Marie_ColemanThe Government has passed legislation which introduces a new external dispute resolution (EDR) scheme, known as the Australian Financial Complaints Authority (AFCA), to resolve disputes relating to financial services complaints. The establishment of AFCA means there will be a single scheme for all financial services and superannuation complaints. Currently there are three separate schemes: the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal.

AFCA will have higher monetary limits and compensation caps than the existing schemes. In addition, there will be an enhanced internal dispute resolution (IDR) framework to report IDR activities to AFCA in accordance with ASIC requirements.

AFCA will start accepting complaints no later than 1 November 2018. The operator of the scheme will be authorised by the Minister, and the scheme will be subject to ongoing oversight by ASIC. Members of FOS and CIO must continue to hold their EDR membership in the lead up to AFCA.

Further information can be found here.

Draft legislation proposes design and distribution obligations for financial products

Ann-Marie_ColemanLate last year, the Government released an exposure draft of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2017 (Bill). The Bill seeks to introduce:

  • design and distribution obligations for financial products to ensure such products are targeted at the right people; and
  • a temporary product intervention power for ASIC when there is a risk of significant consumer detriment.

Read the rest of this entry »

ASIC review into direct life insurance results in customer refunds

ASIC has announced that ClearView Life Assurance Limited (Clearview) will refund 16,000 customers a total of approximately $1.5 million. This follows an ASIC review of Clearview’s life insurance sales practices.

The review focused on sales to consumers residing in high Indigenous populated areas who were unlikely to have English as their first language. The sales were made directly to consumers, without personal financial advice. The review found that sales staff:

  • made misleading statements about the cover, the premiums and the effect of the customer’s pre-existing medical conditions;
  • did not clearly obtain the customer’s consent to purchase the cover before processing premium payments; and
  • used unfair and high pressure sales practices.

In response to ASIC’s concerns, Clearview will:

  • refund full premiums, all bank fees and interest to customers with high initial lapse rates and refund 50% of premiums and interest to customers with high ongoing lapse rates;
  • offer a sales call review to other eligible customers and remediate if there is evidence of poor conduct;
  • engage EY (as an independent expert) to provide independent assurance over the remediation program; and
  • cease selling life insurance directly to consumers (i.e. without personal financial advice).

This announcement follows a continued focus by ASIC into the life insurance industry. ASIC has noted that it is conducting an industry review of direct life insurance to identify any concerns with sales practices or product design that may be driving poor consumer outcomes. ASIC will publish the findings of their review in mid-2018.

Further information can be found here

ASIC seeks further powers to provide directions to licensees

Ann-Marie_ColemanThe ASIC Enforcement Review Taskforce (Taskforce) is seeking to expand ASIC’s powers to give directions to financial services and credit licensees (licensees). This follows on from the Taskforce’s earlier recommendation that ASIC’s banning powers be enhanced (see our previous update for more information – available here).

The key recommendations from the Taskforce are as follows:

  1. Where necessary to address or prevent compliance failures, ASIC should have the power to direct licensees regarding the conduct of their business (Directions Power). The legislation would set out the types of directions that ASIC can make.
  2. The Directions Power should be triggered where a licensee has, or will, contravene their licensing requirements (including relevant laws).
  3. ASIC should be able to apply to a court to enforce the direction and take administrative action if the licensee does not comply with the direction.

The Taskforce proposes that an appropriate process for the exercise of the Directions Power would be:

  • ASIC provides a notice to the licensee setting out the intention to make a direction, reasons and a reasonable time period for the licensee to respond;
  • If any response from the licensee does not adequately address ASIC’s concerns, ASIC may then make the direction; and
  • When making the direction, ASIC will set out the reasons and a time frame for complying.

These changes have been proposed as the Taskforce considers that there are shortcomings with respect to ASIC’s existing powers to require licensee’s to adopt internal systems or restrict their activities, including that the time it takes to impose additional conditions can leave financial customers at risk. Currently, ASIC may only make changes to the licence after giving the licensee the opportunity to appear at a private hearing before ASIC and make submissions. ASIC’s current powers also include the ability to apply for an injunction or negotiate an enforceable undertaking with the licensee.

The Taskforce has released a consultation paper on its recommendations and submissions will close on 20 November 2017.

Further information can be found here.

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