A recommendation that new rules for bank executives be extended to those at the top of life insurance businesses has been swiftly rejected by the industry.
Having found that consumer protections are “substantially weaker” in life insurance, the Parliamentary Joint Committee on Financial Services on Tuesday recommended the Banking Executive Accountability Regime (BEAR) be applied to life insurance companies.
BEAR, which is due to begin on July 1, will give the government and regulators high levels of control over the selection and remuneration of senior executives.
That the regime should be extended to life insurance bosses is one of a series of details recommendations by the committee in a 200-page .
The proposal is understood to have taken the industry by surprise.
The Financial Services Council quickly rejected the suggestion because BEAR was designed specifically for banks, or authorised deposit-taking institutions, and said there had been “insufficient consultation with industry about this proposal”.
The committee’s report concludes that consumer protections in life insurance are “substantially weaker” than in other parts of the financial services sector, and the industry should not be left to self-regulate.
Other recommendations include bigger penalties for wrongdoing, a program of random audits covering 20 per cent of the life insurance adviser population, and a possible moratorium on the use of predictive genetic information.
“In response to concerns over genetic discrimination, several countries have enacted legislation or voluntary agreements to restrict or fully ban the use of genetic information by insurance companies,” the report says.
“The committee is of the view that it is inherently unfair to limit or deny a person access to products such as life insurance based on factors that are out of their control.”
As such, the Financial Services Council should work with the Australian Genetic Non-discrimination Working Group to consider the effect of a moratorium on consumers.
“The committee recommends that the penalty amounts under ASIC administered legislation, including the life insurance industry, should be set at three times the benefits obtained for every party to the transaction, including advisers, licensees and insurers,” the report also says.
Moreover, random audits should be used to identify misconduct and strikes against licenses and insurers should be made public.
The committee examined direct, retail and group life insurance.
A code of practice is being developed by the industry, but the committee is not convinced self-regulation is the best option.
In any case, the industry should develop a mandatory and enforceable code of practice for dealing with mental health life insurance claims and related issues, the report says.
The FSC says recommendations about claims handling, medical definitions, timeframes for dealing with customers and mental health are already included in a “well advanced” code due to be released for consultation later this year.
During public hearings, the committee heard concerns about the existing opt-out model of group life insurance through super because it eats into the savings of those with low balances.
It did not recommend a shift to an opt-in mode, but said the “dearth of action by superannuation trustees and life insurers to fix the problem of duplicate insurance … was completely unacceptable”.
FSC chief executive Sally Loane said the committee should be “commended for recognising the value of opt-out insurance in superannuation and expressing its support for it”.
“The FSC agrees with the committee’s assessment that improvements can be made to improve outcomes for some consumers and is actively exploring initiatives to achieve this,” she said.