The peak body for life insurers admits consumers have been let down and their trust shattered following recent scandals over claims mishandling, and it is developing a new code of practice in an attempt to repair consumer confidence.
Sally Loane, chief executive of the Financial Services Council, unveiled updates to the Life Insurance Code of Practice with a bigger focus on consumer protections, amid upheaval in Australia's $44 billion life-insurance industry.
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"People have been let down and trust has been damaged. I deeply regret this has happened," Ms Loane said at the FSC Life Insurance Conference in Sydney on Wednesday.
"We are working hard with all of our members to rebuild trust and confidence in life insurance. Many of our members have moved quickly to instigate their own internal reviews, particularly into denied claims and policy definitions."
CommInsure, one of the biggest players in the life sector, was found to have used an outdated definition of heart attack to deny trauma claims and battled a claim from one of its own employees who was suffering depression and post-traumatic stress disorder.
In an investigation by Fairfax Media and Four Corners, CommInsure and other insurers including AMP and Zurich were using old definitions for severe rheumatoid arthritis which are unfairly blocking customers from receiving payouts.
Assistant treasurer Kelly O'Dwyer has signalled a review into CommInsure and the wider life sector following the news reports.
At the same time, the industry is battling a series of challenges including rising claims, policy lapses and lawyers encouraging clients to sue for payouts - all of which are hitting the bottom lines of life companies.
"In order to ensure consumer protections are even stronger, we will add a steering group to our code development process which will include consumer representatives, the Financial Rights Legal Centre and the Consumer Action Law Centre, as well as senior life insurance executives," Ms Loane said.
"The consumer representatives will work closely with our members to identify where we need to strengthen consumer protections in our code. Our code is a living document, and will be updated as relevant."
This is not the first time life insurance has been in the limelight for all the wrong reasons. In 2014, the corporate watchdog found an "unacceptable level of failure" among financial advisers who prioritised their own interests in earning commissions, ahead of of the their clients' interest.
Nearly 40 per cent of advisers surveyed by the Australian Securities and Investments Commission failed to comply with the law, with one out of three advisers focused on earning lucrative commissions rather than serving clients.
Last year, John Trowbridge, a former member of the Australian Prudential Regulation Authority, tabled a series of reforms for the life sector, including slashing expensive, up-front commissions.
A bill before Parliament takes on board some of Mr Trowbridge's recommendations, and will reduce these payments.
"Today is a good opportunity to face into our problems, to learn from the past, examine what we've done well, and ensure we don't repeat what we haven't," Ms Loane said.