Life Insurance Code of Practice 2.0: Claims Handling Update from 1 July 2023

Background to Code 2.0

The Life Insurance Code of Practice [Life Insurance Code of Practice FSC] is an industry self-regulatory code developed by the Financial Services Council (FSC). It provides a framework for life insurers to operate and aims to promote fair and consistent claims handling.

Version 2.0 of the Life Code came into force on 1 July 2023, superseding version 1.0, which had been in place since 1 July 2017. This update reflects ongoing efforts to enhance consumer outcomes and industry best practice.

Subscription to the Code is voluntary, although most major retail life insurers participate. Subscribers commit to upholding standards that exceed the minimum legal requirements outlined in the Insurance Contracts Act 1984 and Corporations Act 2001. The Life Code Compliance Committee, an independent body, monitors compliance with the Code.

Claims handling enhancements

The Life Insurance Code of Practice 2.0 includes several enhancements to claims handling procedures. Subscribers are required to adhere to clearer time frames for claims decisions, with a maximum of 12 months for most claim types. Claimants must also be kept informed of the progress of their claim investigation, with updates provided at least every 20 business days.

Specific provisions apply to mental health claims. These require that claims are handled by appropriately trained claims staff, with decisions subject to review by senior personnel. Furthermore, the Code outlines strict rules regarding the use of surveillance, ensuring proportionality and requiring notification to the claimant.

When a claim is declined, subscribers must provide a written explanation to the claimant. This explanation must detail the reasons for the decline, as well as information regarding the customer’s rights to review the decision and pursue dispute resolution.

Vulnerable customers and 'no surprises'

The Life Insurance Code of Practice 2.0 expands protections for customers experiencing vulnerability. Examples of vulnerability include mental health concerns, family violence, and financial hardship. Insurers are required to train customer-facing staff to identify and provide appropriate support to vulnerable customers.

A core principle of the Code is ‘no surprises’. This requires insurers to clearly highlight key features, exclusions, and limitations of policies to customers at the point of sale. This aims to ensure customers fully understand their coverage.

Subscribers must also offer flexible payment options to customers experiencing financial hardship. Furthermore, the Code prohibits the use of generic medical definitions, ensuring they reflect current medical practice.

Code enforcement and compliance

The Life Code Compliance Committee (LCCC) is responsible for monitoring and enforcing the Life Insurance Code of Practice. The LCCC’s enforcement powers allow it to take action against subscribers who fail to meet the Code’s requirements. Potential sanctions include requiring corrective actions, publicly naming non-compliant subscribers, and recommending changes to the Code itself.

The Life Code operates in conjunction with existing Australian legislation. It complements, but does not replace, statutory consumer protection regimes such as the Insurance Contracts Act 1984 and the Corporations Act 2001, alongside the Financial Sector (Collection of Data) Act 2001. Claims handling is now also a regulated financial service under section 766A of the Corporations Act 2001, following amendments effective from 1 January 2022.

Code 2.0 operates alongside the FSC Life Insurance Industry Standards, including the FSC Genetic Testing Standard FSC genetic test life insurance ban 2024.