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Improving group insurance via new code of conduct

Sally Rose




John Trowbridge, the architect of a new voluntary code of conduct for life insurers, has endorsed a move by the superannuation sector to adapt it.

A working group representing five rival superannuation industry bodies has its work cut out to ensure all members have confidence their fund is getting them a good deal on insurance.

The five peak bodies – the Financial Services Council, the Australian Institute of Superannuation Trustees, Industry Super Australia, the Association of Superannuation Funds of Australia, and Industry Funds Forum – issued a joint statement last week pledging to work together on improving standards in group insurance.

This pre-empted the announcement earlier this week that the country’s major life insurers had agreed to sign up to a new voluntary code of conduct, born out of the 2015 Trowbridge Review.

John Trowbridge, a former APRA member, was appointed by the FSC to conduct a review into life insurance sales and advice, following a damning 2014 investigation by the Australian Securities and Investments Commission.

Landmark report

Trowbridge told Investment Magazine he was pleased with the industry’s response to his landmark report, which recommended slashing the hefty upfront commissions payable on direct life insurance policies.

“In 18 months, which is relatively quick, the whole industry has agreed to come on board and come up with a code of practice that really does hold the insurers to higher standards,” Trowbridge said.

The code of practice, which is binding on all life insurers, will improve standards and response times around underwriting practices, claims handling, policy administration and the processes for reviewing the medical definitions that apply to policies, he said.

Trowbridge said it was unfair to criticise the code for not immediately covering superannuation fund members where the superannuation fund trustee is the policyholder. He was hopeful a superannuation industry working group, announced on Friday, would succeed in finding a way to apply the code across the sector.

“The code applies directly to all life insurance policy holders outside superannuation funds. The same standards and requirements of insurers can be expected to apply to all superannuation fund members once a mechanism is found to extend the provisions of the code to them via their trustees.”

More details on what this will look like are expected to be made public next week, following an industry roundtable held in Canberra at the start of this week.

The industry will be under pressure to show it is taking action following the release of new reports from the two key regulators on Wednesday.

APRA said that group insurance arrangements in superannuation, including claims oversight and governance practices, “remain an area of heightened focus”.

However, the prudential regulator also flagged that it expected the super and life insurance industries would “continue to work to improve practices in this area over time”.

While ASIC’s latest report flagged there is still plenty more work to be done to improve consumer protections, it also found that sector-wide, nine out of 10 life insurance claims are paid. ASIC also found that the premium payout ratio within the group insurance sector was above 85 per cent, compared to around 50 per cent across direct policies.

Around 70 per cent of all life policies are held via super.

Most efficient mechanism in the world

ASFA interim chief executive Jim Minto, said the existing framework for providing default death, disability and income protection insurance via super was world-leading.

“There is important work to be done to make consumer protections even more robust, but is important that we don’t lose sight of the fact that Australia has the most efficient mechanism in the world for delivering group life insurance coverage.”

Nevertheless, there is no shortage of gnarly issues the new working group could turn their attention to. These include how to ensure premiums do not unduly erode low balances, that levels of cover are appropriate for member cohorts, and that members understand their policies and their options.

Another critical issue to consider will be how trustees ensure claims are handled in a fair, transparent, and timely fashion.

Having joined Investment Magazine as editor this week I look forward to seeing how the industry attacks this important challenge.

Please get in touch to share your thoughts on this, or any other issue you care about. You can reach me on (02) 9227 5798, [email protected], and @sallymrose.