Insurers held to new standard on medical definitions

  • By Andrew Starke

Financial Services Council (FSC) members will from July be subject to the industry’s first ever Life Insurance Code of Practice for consumers, complete with new minimum standard medical definitions for serious illnesses.

The establishment of the code of practice was a recommendation of the 2015 Trowbridge Review into the life insurance sector and followed revelations that CommInsure and other insurers had used out of date medical definitions to deny claims.

In March, the Australian Securities and Investments Commission (ASIC) concluded that CommInsure had sold trauma policies with medical definitions that were out of date, specifically for heart attack and severe rheumatoid arthritis.

The regulator’s conclusion that this was not illegal as the law allows an insurer to set out the level of cover its policy provides - including out of date medical definitions as long as these are clearly disclosed in the policy - was met with derision by the media and many commentators.

“Insurers can sell consumers policies which already have outdated medical definitions. Although this is not against the law, it is clearly out of step with community expectations, given that consumers cannot be expected to know whether a medical definition is already outdated when they purchase life insurance,” ASIC reported after its investigation.

“The life insurance industry has recognised this, and under the new life insurance code of practice will take steps to minimise the risk that medical definitions are out of date when policies are sold.”

The FSC’s Life Insurance Code of Practice is the industry’s attempt at self-regulation with a foundation of new minimum standard medical definitions for cancer, heart attack and stroke for use in trauma/critical illness policies.

Strengthening consumer protections

In a statement, the FSC said the new definitions had been developed with the assistance of medical professionals and would be under continual review to ensure they are in keeping with advancements in medical science.

The Code itself was developed by the FSC through public consultation and is mandatory for FSC life insurance members. It covers all aspects of interactions with consumers from product design, buying insurance, regular communications and making claims.

Non-compliance by FSC members can result in sanctions including: a formal warning; corrective advertising or written acknowledgment of a breach to impacted customers; and publication of non-compliance on the insurance provider’s website and the FSC website.

“The Life Insurance Code of Practice demonstrates the life insurance industry’s commitment to improving standards and strengthening consumer protections. This document is a clear declaration of the level of service consumers can expect from life insurers in language they can understand,” FSC CEO Sally Loane said.

“The FSC has worked closely with our life insurance members and medical professionals to ensure that a new foundation of minimum standard medical definitions, is implemented for new policies from day one of the Code regime. In doing so we have laid the foundations for the on-going strengthening of the Code.”

As well as the new standard on medical definitions, the FSC announced the establishment of a Life Code Compliance Committee (LCCC) - the independent body responsible for ensuring member compliance with the Code.

Administered by the Financial Ombudsman Service, the Committee comprises a representative from industry, a consumer representative and an independent chair. The LCCC members are: Prof David Weisbrot (chair); David Goodsall; and Alexandra Kelly.