Readers will recall our Winter 2020 issue of the Life Insurance Bulletin which provided a recap of the Life Insurance Code of Practice (LICOP); where things had been and where things were headed. We made note of the looming legislative changes seeking to implement, among other things, the enforceability of industry codes such as the LICOP and otherwise touched on the implications for the life insurance industry at large and what may come of the LICOP going forward.

The FSC released an updated draft LICOP 2.0 which seeks to give effect to the consultation process and stakeholder engagement process undertaken throughout 2020. As noted by the FSC in its report, the aim of this revised LICOP 2.0 is to ‘ensure that the Code is as easy to read, and as easy to navigate for everyday Australians as possible.’¹ Furthermore, to broaden its scope so as ‘to provide further support to those who are vulnerable, include additional protections for consumers, ensure a consistent approach when communicating with consumers and to provide increased powers to the LCCC.’² 

The updated draft LICOP 2.0, released by the FSC on 18 August 2021, has been the subject of a second round of public consultation (which concluded on 29 September 2021) after which it is intended that the LICOP 2.0 will be submitted for registration under ASIC’s new enforceable code regime. This article considers key changes contained within the LICOP 2.0 and implications for life insurers.

The LICOP 2.0

Consumer Consent

Whilst the LICOP 2.0 has an increased focus on communication and transparency with the customer, the requirement for insurers to obtain customers’ consent to access personal information, whether that be for the purposes of underwriting or assessing a claim, is a clear example of the Code’s attempt to provide better protections for consumers and instil within the LICOP improved industry practices when it comes to the collection and circulation of personal information.

Importantly for consumers, the LICOP 2.0 will require insurers to inform the customer on each occasion that their consent is to be used to obtain personal information and in order to give effect to this requirement, insurers must utilise modern means of communication and contact the customer by phone, SMS, email or similar to provide, wherever possible, the proper notification in this regard. The LICOP 2.0 states:

‘Every time you make a new claim, we will ask for your consent for us to collect information about you, such as about your finances, job or health. We may ask you to consent to us requesting information from more than 1 source. We will tell you each time we use your consent by phone, SMS, email or similar when possible, to ensure you know quickly. If you do not agree that we need some of this information, we will review our request.’

Indeed, the new LICOP 2.0 will demand that insurers employ more stringent policies and procedures to ensure that proper consent is obtained from customers wherever necessary, particularly when personal information of a customer or policy owner is to be obtained or shared. Obtaining consent from the customer will also extend to those circumstances where the customer or life insured is not the policy owner. Under the new LICOP 2.0, insurers will not be able to share the personal information of a customer who is not the policy owner without that customer’s consent. This may typically arise in the context of group cover where a superannuation trustee is the policy owner (as opposed to the life insured) or where a retail policy may be issued to one person in respect of the life of another person.

Duty to take reasonable care

Readers will also be interested to know that the new LICOP 2.0 takes account of the new ‘duty to take reasonable care not to make a misrepresentation’ when applying for a policy of life insurance. LICOP 2.0 will require that insurers adequately explain the duty to all customers and also advise of the possible consequences of not taking reasonable care when completing a proposal or application for a life insurance policy.

Furthermore, and consistent with the aims of the consultation process, insurers must ensure that the questions they ask in any proposal or application are in plain language wherever possible and while customers will not be required to have specialist knowledge to answer the questions posed, customers will be ‘expected to have a good understanding of their own health, lifestyle and financial situation.’

Of course, policies of life insurance are commonly sold over the phone and so the LICOP 2.0 seeks to provide consumers with adequate protections in these circumstances. Specifically, where questions are asked of customers face to face or on the phone, insurers must do so carefully, to help the customer understand what is being asked of them so as to assist the customer to comply with the duty to take reasonable care not to make a misrepresentation. Insurers will also have to repeat a question as many times as the customer reasonably requires, give the customer time to ask questions and ask the customer if they have understood the questions asked of them.

‘We will give you a record or summary of the answers we use to assess your application no later than 10 Business Days of the cover starting.’

Importantly for consumers, whenever an insurer determines to avoid a policy or one’s cover under a group policy, LICOP 2.0 will require the insurer to issue a ‘Show Cause’ letter that includes copies of any information that may be relevant to the decision, explains any remedies and the impact that the decision may have on the cover and otherwise gives the customer a chance to explain and provide any further information or documents for the insurer to consider. Of course, the provision of such ‘show cause’ letters are already common place amongst insurers.

Claims & Complaints

Whilst most of the existing timeframes have been maintained in the LICOP 2.0, there is now an additional obligation on life insurers to advise consumers of a decision on the claim within 5 business days, once all information needed to make a decision, including the policy owner’s response to Procedural Fairness or Show Cause letter has been obtained and once all steps have been taken to finalise the decision. Of course, the new LICOP 2.0 caters for those circumstances beyond the control of the insurer which may impact on meeting the timeframes. Regardless, if there is a delay in the decision making process, insurers will be required to update policy owners on the progress of the claim at least every 20 business days (s5.50 (c)).

In relation to Income Protection claims, the LICOP 2.0 will require that insurers make payment of any income-related benefit by the later of the due date or within 5 business days of when the insurer has completed all reasonable enquiries, has obtained all the information reasonably needed to assess the claim, and has taken all the steps needed. Insurers will otherwise have to notify the policy owner or claimant that their payment will be late within 5 business days of the insurer becoming aware.

The new LICOP 2.0 will reduce the maximum time allowed for insurers to conduct interviews from 2 hours to only 90 minutes and otherwise provide increased protections for claimants throughout this process. Under the new LICOP 2.0, policy owners or claimants will have the right to a support person or interpreter if required and they will otherwise have the ability to determine the gender of the interviewer if that is at all possible. Intermittent breaks will be provided and the interview paused or postponed if it becomes evident that a support person or interpreter is required but for whatever reason, was not arranged.

With respect to complaints handling, the LICOP 2.0 provides for more rigorous time constraints than that seen previously. For example, there is now a requirement for insurers to acknowledge a complaint within 24 hours of lodgement or otherwise as soon as practicable (s7.2). Further, insurers must provide a written response to the complaint within 5 business days and provide a final written response within 30 calendar days, barring any circumstances beyond the insurer’s control. If there are such circumstances causing a delay, insurers will be required to tell the policy owner why there is a delay and otherwise keep complainants regularly updated about the progress of the complaint.

Finally, if a complaint relates to a policy of life insurance owned by a superannuation fund trustee, consumers can lodge a complaint with either the life insurer or the trustee. However, it is the trustee who must give the consumer a written response to the complaint within 45 days of lodging the complaint (s7.16). Notably, this 45 day timeframe is half the time stipulated in the current iteration of the LICOP (90 days).

Vulnerable Persons

The LICOP 2.0 will also further support customers experiencing vulnerability and financial hardship. This is another key pillar of the new LICOP 2.0. Under this new section, consumers are advised that if they need extra support due to vulnerability, the insurer will work with them to find a suitable, sensitive and compassionate option where possible. Insurers will do this as early as practical. Customers will otherwise be encouraged to inform insurers about any vulnerability they may have and if they need extra support, the insurer can arrange support or help to access its services. This includes engaging extra support such as a lawyer, consumer representative, interpreter or friend. Insurers will be required to recognise the customers’ needs in this regard and allow it in all reasonable ways. Insurers must ensure that its processes are flexible enough to recognise the authority of the customer’s support person where possible.

This means of course that insurers will have to have in place internal policies and role-appropriate training to help its employees identify and understand if customers are vulnerable, consider the customer's unique needs or vulnerability, decide how to help the customer engage with the process and to what extent, and engage with the customer with empathy, compassion and respect. Finally, the LICOP 2.0 will require insurers to recognise that people living in remote and regional communities may have trouble meeting the timeframes set to provide documents or to take part in claims assessments. Accordingly, insurers will have to take this into consideration during the underwriting and claims processes.

Anti-Discrimination 

The LICOP 2.0 has removed the reference that decisions on applications will comply with the requirements of anti-discrimination law. Naturally, such an obligation arises pursuant to the Commonwealth and various state anti-discrimination regimes so is unnecessary to restate in the code.

However, the current code did include references to other evidentiary matters in the context of decisions on applications, which did not necessarily mirror the anti-discrimination law requirements. To this extent, the removal of that wording would appear to result in the LICOP 2.0 being more closely aligned to anti-discrimination legislation.

Implications

The LICOP 2.0 sets clear obligations for insurers and underscores the industry’s commitment to openness, fairness and honesty in all dealings with customers. It includes a range of customer centric provisions, including stronger protections for customers with a greater level of transparency in the underwriting, claims and complaints process as well as support for those experiencing vulnerability and financial hardship.

The enhanced customer protections place greater emphasis on life insurers making early decisions on the evidence required to assess a claim.

The LICOP 2.0 is likely to be a barometer for expected standards of life insurers in a range of disputes, which enhances the importance of complying with such standards. Of course, LICOP 2.0 will also take on additional prominence when certain provision within it are deemed enforceable code provisions.

¹https://www.fsc.org.au/policy/life-insurance/code-of-practice/code-2-0
²Ibid.