Insurance code needs teeth

Kim Shaw writes that in reforming the process on opt-out default life insurance, Financial Services Minister Kelly O’Dwyer has taken a practical approach that will help to provide greater choice when it comes to super and insurance offerings, whilst also protecting a vital safety net. 

Default insurance through superannuation plays a key role in helping to close the insurance gap for thousands of Australians, providing cover to workers who otherwise may have no life or  disability insurance at all, for roughly the cost of a cup of coffee per week. 

These latest reforms recognise that a simpler process is needed for when people wish to make changes to their default insurance cover to minimise the risk of erosion of retirement savings –something we support, as long as it is coupled with education around the 
necessity for default life insurance in super in helping to guide people to make informed choices, including young people who may be seeking to consolidate their super.

This change is an important down-payment for a fairer, more transparent system of insurance in superannuation. 

However, addressing the erosion of retirement funds is only one part of the challenge, with much work still to be done within the industry to ensure a better, long-term standard that puts an end to continuing scandals and mistreatment of consumers by insurers.

A critical component in this fix must be the implementation of an enforceable and rigorous code of conduct. 

The industry believes it has ticked the box on the development of a code, after the Financial Services Council (FSC) released a life insurance code of practice last year. That same code is now under consideration to be extended to superannuation funds, as part of the Insurance in Super Working Group (ISWG) process.

While this may sound like progress, the truth is that the industry is still nowhere near close to the implementation of the strong code of conduct that is so badly needed if the industry is to be properly reformed as a whole.

A rigorous and enforceable code of conduct should have teeth, with its focus being to put the genuine interests of consumers first. It must cover the entirety of the industry and be inclusive of third parties acting on behalf of fund members, including lawyers, financial counsellors and advisers.

The FSC code however has all the bite of a month-old lettuce – a narrow restatement of the current law that is voluntary, has not been approved by ASIC, has had little buy-in across other stakeholders, has no formal oversight and crucially, would do little to prevent the many scandals that continue to be exposed within the industry. 

With the formation of the ISWG came the hope that the FSC code would be given a rigorous overhaul, with the ISWG noting that a code for super funds is a ‘key deliverable’. 

To date however it seems that all the ISWG is prepared to implement is an extension of the existing FSC code, focussed largely on claims handling without addressing the pressing need for any code to also ensure consistency in definitions and process, including real remedies and sanctions for those who fall short.

Indeed, the Association of Superannuation Funds of Australia (ASFA), a major player in the ISWG process, has argued only recently in a submission that it is concerned about any role for ASIC with respect to approval and monitoring of codes – ludicrously seeking to state that such enforcement will add to the regulatory burden and not lead to better consumer outcomes.

In short, they all appear to be heading towards the FSC tool kit, opting only for a weak extension of an already weak regime. We remain optimistic that the final code coming out of the ISWG however will be sufficiently vigorous, for the sake of consumers. 

A strong code of conduct is not a new concept, indeed organisations like Maurice Blackburn and the Australian Lawyers Alliance have advocated for such a code for a number of years – including seeking actively to be a part of the broader solution for the industry. 

To date however, those efforts have disappointingly fallen on deaf ears. It is long past time that claimants were put first with a real and enforceable code of conduct, a code that must have ASIC approval and that gets the job right at last in properly canvassing the full extent of the problems facing claimants, and not just skirting around the issues. 

Kim Shaw is a principal in superannuation and insurance at Maurice Blackburn Lawyers. 




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