In the below article, we summarise the background to the updated Life Code and the implications for life insurers, and describe what we consider to be the key developments which will come from the updated Life Code, namely:
- Extending increased support and protections to customers, including those going through times of vulnerability, financial hardship or experiencing a mental health condition, both before policies are entered into as well as throughout the claims process
- Focussing on the entire customer experience
- Making underwriting decisions more transparent
- Strengthening the sanctions which the Life Code Compliance Committee (LCCC) can apply for non-compliance with the Life Code
The Life Code has guided the life insurance industry since 1 July 2017. The Life Code was voluntarily developed, and remains self-regulated, by the life insurance industry, through the FSC, to promote a high standard of service to consumers, provide a benchmark for consistency within the industry, and establish a framework for professional behaviour and responsibilities.
On 22 June 2022, the FSC published the updated Life Code which will take effect from 1 July 2023. The updated Life Code represents the first changes to the Life Code since it was first introduced in 2017.
The updated Life Code applies to most life insurance products, including term life, death and terminal illness, total and permanent disability, income protection and critical illness. However, the updated Life Code does not apply to life insurance products issued by general insurers, health insurers, superannuation fund trustees, financial advice companies or financial advisers, or other industry participants who have not adopted the Life Code.
The four significant categories of customer protections introduced are as follows:
1. Increased support throughout the claims process.
One of the new measures introduced through the updated Life Code to ensure that customers are supported throughout the claims process is greater regulation of medical examinations, customer interviewing and the use of surveillance. For example, Life Code subscribers are now required to tell their customers that they can ask for a list of doctors to choose from, which can include at least one doctor of each gender, when being asked to attend an independent medical examination. When asking a customer to be interviewed, Life Code subscribers are also required to arrange an interviewer that is of a certain gender, if the customer asks for this specifically. As for surveillance, Life Code subscribers are required to stop surveillance if appropriate advice to that effect is received from any medical practitioner, support worker or family member of the customer.
In order to ensure fair treatment for all customers, significant timeframes have been introduced to the claims process to ensure that claims are paid as promptly as possible and that life insurers only ask for the evidence that they reasonably need to assess claims. These timeframes include notifying customers of decisions within 15 business days of receiving all information (10 business days under the existing Life Code), five business days for internal approvals, and restrictions on extending timeframes. While these new provisions are directed at increasing support for customers, there has been no change in shortening timeframes for the assessment of claims. Namely, existing timeframes of two months to determine income-related decisions and six months to determine lump-sum decisions remain.
For customers experiencing mental health conditions, the updated Life Code ensures that those individuals are provided additional support when making a claim under their policies. The updated Life Code bans blanket mental health exclusions in new policies, and sets out a dedicated protocol under Section 6 as to how the insurance industry will handle claims made by vulnerable individuals, which includes those experiencing mental health conditions. The provisions in Section 6 aim to give support to those with mental health conditions and other vulnerabilities and to make it easier for affected customers to identify what additional support is available to them.
2. The customer experience.
The updated Life Code has introduced measures to enhance the customer experience; to ensure that customers make informed, considered decisions with respect to their life insurance and understand what to expect throughout the process. This includes greater premium disclosure, including providing customers with more information explaining premium structures, to help customers understand how the cost of their policy might change. The extension of 30-day cooling-off periods to all sales of long-term policies and a ban on coercive retention techniques has also been introduced to ensure customers are given the opportunity to properly consider the policy they are purchasing and to evaluate when it is appropriate to cancel their policies. Provisions to introduce sales training for the staff of Life Code subscribers and remuneration being tied to good customer outcomes are further new measures aimed at ensuring that sales staff are not incentivised to pressure customers into taking out policies they do not want or need.
Vulnerable customers are provided greater protection under the updated Life Code, including broadening the circumstances in which a customer will be considered vulnerable, defining ‘gratuitous concurrence’ to ensure genuine consent is obtained, and publishing publicly available policies explaining how those affected by family or domestic violence will be supported.
The Life Code has also undergone an independent plain English re-write, has been restructured for easier navigation, and has removed restatements of law with the aim of making the Life Code easier to read and understand.
3. Greater transparency in underwriting decisions.
The updated Life Code aims to provide customers with a greater understanding as to the reasons why underwriting decisions are made and the process through which those decisions can be reviewed. The changes which have been introduced include that consent wording is now limited to accessing a customer’s clinical notes to protect privacy, taking account of the history, severity or type of mental health conditions, and limiting family history to a consideration of first-degree blood relatives.
New measures have also been introduced to ensure customers understand why they are being asked to pay a higher premium or accept a more restricted cover. These include new requirements to explain alternative terms, notifications of how long alternative terms will apply for, and notifications advising that alternative terms can be reviewed.
4. Sanctions for non-compliance.
The examples of sanctions which can be imposed on Life Code subscribers for breaches has been expanded, a measure which has been introduced to increase customer confidence in the protections the updated Life Code provides. Depending on the significance of the breach, which is determined by the LCCC, life insurers can now be required to make a community benefit payment of up to $100,000 to a charity.
Implications for life insurers
The updated Life Code will come into effect from 1 July 2023, which provides the life insurance industry with about 12 months to take up the reforms introduced by the updated Life Code and make the necessary systems adjustments required in order to comply with the revised standards.
The Life Code is mandatory for all FSC life insurance members. The FSC has announced that it will continue to work collaboratively with the life insurance industry to ensure the important consumer protections in the updated Life Code continue to apply across the industry.
Considering some of the provisions of the Life Code will become enforceable, it is essential for Life Code subscribers to understand the significant changes being introduced prior to the commencement date, including making themselves familiar with the supporting material which is yet to be published by the FSC. This supporting material includes the Code charter, consumer guides to insurance law, guidance on family & domestic violence policy, and publications about premium structures.