Insurers lagging on definition updates

According to the Life Code Compliance Committee’s latest inquiry into insurers’ compliance with medical definition provisions in the code, 791 medical definitions within 98 life products across 15 code subscribers were flagged as requiring an update when they were reviewed during the mandatory three-year review period in the code.

While the majority (773) of the definitions had been updated as at 30 June 2020, a further 18 definitions across three code subscribers were yet to be updated, and the subscribers indicated they only planned to update them in the next six to 12 months.

“Of the 18 medical definitions that were not updated, 12 medical definitions required reinsurer’s approval, three medical definitions required pricing analysis prior to implementation and three medical definitions would be updated as part of the subscriber’s product review process,” the report stated.

“Although this is within the requirements of the code, the committee considers that long delays that were known in advance are not in the spirit of the code and considers that best practice would have been for the subscribers to have updated the medical definitions within three months after 30 June 2020.”

As a result of the findings, the committee recommended that code subscribers be required to update outdated definitions within three months, and expected that “the subscriber would ensure the customer’s claim is handled and assessed fairly and honestly” if a claim was made involving an outdated definition.

The report also identified that a significant number of insurance policies were not covered by the medical definition provisions of the code in its current form, as they were no longer actively on sale.

“Fourteen subscribers reported that they had off-sale products that were previously on-sale between 1 July 2017 and 30 June 2020,” the report said.

“In seeking information about the type of products sold by each subscriber, the response data showed that off-sale products comprised almost one third of all products offered by subscribers between 1 July 2017 and 30 June 2020.

“Off-sale products represent a significant part of the life insurance market but are not covered by section 3.2. It is the committee’s view that customers of these products should also be afforded the protection of section 3.2 of the code.”

FSC chief executive Sally Loane said the results of the report showed that the industry was “working hard for its customers”, given the majority of medical definitions had been updated on time and in the spirit of the code.

“As the [committee] states, in challenging and uncertain economic times, the code’s consumer protections are especially relevant, and ensuring that definitions are up to date and fit for purpose is a clear way to show that subscribers prioritise fair outcomes for their customers,” Ms Loane said.