The federal government has ramped up pressure on the $44 billion life insurance sector to release its anticipated code of practice covering insurance in superannuation.
The first iteration of the Life Insurance Code of Practice, announced by the Financial Services Council in October 2016, came into force last week. It is an attempt at self-regulation by an industry tarnished by scandals, but currently only covers life insurers who are members of the FSC. It does not apply to superannuation trustees.
But the Minister for Financial Services Kelly O'Dwyer is questioning where a separate code of practice covers group insurance is up to, telling the The Australian Financial Review on Monday that a working group had been operating for over six months and "as yet, the government is not aware of any progress being made in relation to the release of a code which is binding upon superannuation trustees."
"The government expects that the FSC and industry will continue to work towards expanding the coverage and scope of the code to more fully cover group insurance arrangements within superannuation," Ms O'Dwyer said.
In response to a government request last year that the scope of the code be expanded to include group insurance arrangements, the Insurance in Superannuation Working Group (ISWG) was set up with superannuation trustee representatives.
With more than 80 per cent of Australians having insurance coverage within their superannuation funds, in 2016 Minister O'Dwyer asked the FSC to expand the scope of the code to include group insurance arrangements.
As a result the Insurance in Superannuation Working Group (ISWG) was set up by a number of peak bodies including ASFA and AIST.
It is understood the government is eager to see more results from the group with the publication of a code that binds superannuation trustees or, failing that, an expansion of the current life insurance code.
FSC chief executive Sally Loane said the current code cannot impose obligations on trustees of super funds because not all super funds are FSC members.
"Following consultation with the industry and stakeholders through a series of discussion papers, the ISWG is currently drafting a code that will bind superannuation trustees. This is expected to be published by the end of the year and will likely form part of the FSC's existing Life Insurance Code of Practice," she said.
Jim Minto, chairman of the ISWG, said it is "maintaining close contact with ASIC". "Issues like enforceability are still being considered by the working group. ASIC asked the working group to consider this. We will certainly be doing so," he said.
No tribunal oversight
While the first iteration of the code is enforceable by the independent Life Code Compliance Committee, which is administered by the Financial Ombudsman Service, it is not overseen by any courts or tribunals.
One life insurer told the Financial Review that registering the code with the corporate watchdog would "give it more credibility and more teeth".
The FSC said it was "committed to considering" ASIC registration as part of the second iteration of the Life Insurance Code of Practice, but stopped short of confirming it would seek approval.
Life insurer AIA Australia has thrown its weight behind the push.
"We definitely want to see the code registered with ASIC," AIA Australia chief executive Damien Mu told the Financial Review.
"For us it's not a question of if, it's a question of when."
Mr Mu said ASIC recognition may be part of the second iteration of the code.
National Australia Bank's customer relations boss Andrew Haggar said in his capacity as a board member of the FSC he conversed with ASIC about registration.
"Once the whole industry is across it and in the gates, so to speak, if ASIC wants to register it and the various things that go along with that, then that will be a natural step when that moment comes," he told a parliamentary inquiry in late May.
Ms Loane said the code already includes many of the key tenets of ASIC's established approval process for industry codes of conduct.
"That is: our code sets out a comprehensive body of rules developed in consultation with stakeholders, including obligations for monitoring, enforcement and sanctions and there is a robust external governance framework in place with the LCCC responsible for monitoring and enforcing the Code," she said.
"We understand the importance of having an independent arbiter to monitor and enforce compliance with the code."
Last week Treasury issued a consultation paper to consider whether "self-regulatory initiatives" such as industry codes go far enough.
"The impact on the lives of those affected by poor practices, as brought to light in media reports and in parliamentary and other inquiries, has resulted in the Australian financial sector coming under intense public and regulatory scrutiny in recent times and in the impairment of consumer confidence in the sector," Treasury said
"In this context it is apt to consider whether self-regulatory initiatives such as industry codes are achieving their potential, and whether that potential could better be achieved by the introduction of a co-regulatory model."
Ms O'Dwyer said "the government will consider the outcomes of this consultation in determining the most appropriate role for ASIC in relation to industry codes of conduct".
