Alignment needed for life insurance code

The Life Insurance Code will break down if there is a misalignment in how things work in practice compared to what commitments and promises are set out in the code, according to a panel.

Speaking at the Financial Services Council’s (FSC’s) Life Insurance Conference this morning, the corporate regulator’s deputy chair, Peter Kell said misalignment was at the heart of the many problems seen in the financial services industry.

“If there is misalignment between what people are told in what financial services providers are going to do, how they are treated, and what happens in the practice – that’s where self-regulatory codes or other devices break down,” he said.

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Kell said the commitments set within the code were central to ensuring there was trust and confidence in the industry.

“The code sets out some commitments to how you think your industry should behave. It sets out commitments as to how you think consumers should be dealt with and treated,” he said.

“Sets out standards you want to meet as a sector that goes beyond minimum requirements of law.”

Financial Rights Legal Centre principal solicitor, Alexandra Kelly said the code needs to enable consumers to self-advocate themselves when they made a claim.

“Consumers are finding life insurance claims process and insurance contracts so complex they require additional support from us and their rights and they are feeling like they need legal advice and representation to make a life insurance claim – and ultimately this should not be necessary,” she said.

“A consumer should be able to understand a LI product without needing a lawyer to explain it to them and make a claim without a lawyer taking a percentage of the claim.”

Also on the panel, Herbert Smith Freehills special counsel, Claire Machin said that the two risks in the implementation of the code were looking at the code as a set of legal obligations, and overthinking the code.

“There are parts of the code that reflect existing rule and there is possibly temptation of ‘if we are complying with the law at the moment are we not meeting the code obligations’, it’s foolhardy to take that approach,” Machin said.

“The code is not law and that’s its strength. It’s a piece of self-regulation.”

Machin noted the code provided a flexible framework of principles and standards that could be responsive to feedback and further iterations of the development of the code to respond to consumer expectations. She said it reached out and covered areas that had not been addressed but were becoming an issue in terms of consumer experience.

“The second risk of implementation is the risk of overthink. When you look at the code provisions and the statements in the code and you’re in a framework where you’re looking at it on a line-by-line basis and analysis of ‘do our systems and processes meet this particular requirement in the code’,” she said.

“There are potentially a number of interpretations that can be taken for certain provisions of the code and the question is how we are going to address that. It’s very important to step back and look at the objectives of the code and principles, and the statement of intent in what the consumer experience should be.”

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