RESTRICTED
WORLD TRADE S/FIN/W/6
22March 1996
ORGANIZATION
(96-1053)
Committee onTrade inFinancial Services
COMMUNICATION FROM AUSTRALIA
Recent Developments intheLife Insurance Industry
Thefollowing communication iscirculated attherequest ofAustralia.
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Life Insurance Act1995
Following amajor review oftheLifeInsurance Act1945 (involving consultation with industry,
professional andconsumer groups), theLife Insurance Bill1994 wasintroduced intoParliament on
30June 1994. Thenew LifeInsurance Act1995 ,which began operation on1July 1995, contains
core prudential andreporting measures necessary forindustry supervision.
Thenew Actestablishes amodern regulatory regime forthelifeinsurance industry, which
substantially strengthens prudential supervision andimproves consumer protection by:
- clarifying thatallpolicies issued outofstatutory funds oflifeinsurance companies
aresubject toregulation bytheInsurance andSuperannuation Commission;
- establishing aLifeInsurance Actuarial Standards Board todevelop solvency andcapital
adequacy requirements forlifeinsurance companies; and
- improving reporting requirements totheInsurance andSuperannuation Commission
throughnewfinancialstatementswhichwillmakemoretransparentthefinancialposition
andoperating performance oflifeinsurance companies.
Aspartoftheregulatory review, anumber ofmeasures have alsobeen introduced toenhance
consumer protection inthelifeinsurance industry.
Code ofPractice
Alifeinsurance Code ofPractice wasreleased on3August 1995. TheCode became fully
effective from 1January 1996. Itaims toimprove therelevance andquality ofadvice provided to
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consumers andreduce thepotential forinappropriate sales oflifeinsurance products.
TheCode wasdeveloped togovern relations between lifeinsurance companies, advisers and
consumers. Itisintended toimprove insurance industry standards ofpractice andservice onacompany
wide andindustry basis. Monitoring oftheCode does notfocus onindividual transactions, butrather
onensuring thatlifecompanies andlifebrokers have established appropriate systems andreporting
toachieve compliance with theCode.
Theobjectives oftheCode include:
- topromote theprovision ofhigh quality advice andtherecommendation ofpolicies
appropriate tothecircumstances ofthepersons towhom they areissued;
- toensure lifecompanies, lifebrokers andlifeadvisers maintain aminimum standard
ofservices; and
- toensure lifecompanies andlifebrokers have adequate procedures fordealing with
inquiries andcomplaints byowners andprospective owners oflifepolicies.
While fullindustry compliance with theletter andspirit oftheCode isexpected, theCode
hasnotbeenissuedasalegislativeinstrument.Thisapproachhasbeenadoptedtoprovideanopportunity
toassess thepractical operation oftheCode inthemarket place.
Information Disclosure
TheInsuranceandSuperannuationCommissionplacesastrongemphasisonindustrycompliance
with information disclosure requirements toencourage fairandopen dealings between theinsurance
andsuperannuation industries andtheir customers, andpromoting more effective competition.
InFebruary 1996, revised disclosure requirements forpromotional material inthelifeinsurance
industry were released. These requirements were introduced toreinforce theneed forlifecompanies
toprovide potential andexisting policy owners with sufficient relevant information toenable them
tomake aninformed choice indeciding whether topurchase, vary ormaintain alifeinsurance policy
oraninterest inalifeinsurance policy. Inorder toachieve thisobjective, itisnecessary forpromotional
material produced bylifeinsurance companies todisclose allrelevant information inafull, accurate
andreadily comprehensible manner.
Like theCode, theDisclosure Requirements have notbeen issued asalegislative instrument.