How does industry regulation protect Life Insurance customers?
Life Insurance is one of the most heavily regulated industries in Australia. This is in part due to the significant financial impact if an insurer cannot meet their claims obligations, and the need to ensure the right balance is maintained between the requirements of insurance companies with those of its policyholders.
In Australia, the 1995 Life Insurance Act was introduced to provide structured regulations for the Life Insurance industry. It operates in conjunction with prudential standards and practice guidelines and other regulatory bodies to ensure a fair and equitable market is maintained. This includes ensuring Life Insurance companies are financially secure and have the ability to pay claims.
Who are the regulators?
Regulation of the Life Insurance sector and the protection of both consumers and businesses is overseen by:
The Australian Securities and Investment Commission (ASIC)
ASIC oversees all companies as well as the financial services industry generally, so it has a broad responsibility. ASIC flags companies operating outside Australian regulatory frameworks on its MoneySmart website, to help consumers avoid unreliable investments and policies.
The Australian Prudential Regulation Authority (APRA)
APRA is dedicated to maintaining international best practice for all Australian banks, credit unions, friendly societies and life insurers. It is specifically tasked with ensuring that life insurers always operate in compliance with the Life Insurance Act.
What are the key requirements of the Life Insurance Act?
The Life Insurance Act is intended to protect all parties involved in Life Insurance, including the policyholder, the insurer and ultimately the beneficiaries of any claim.
Specifically, the Act:
- provides regulatory requirements for the sale of Life Insurance products
- sets out the requirements for payments to policyholders, and
- requires that Life insurers act in an appropriate fashion when offering their Life Insurance products for sale.
One of the key principles of the Act is to ensure that only regulated Life Insurance companies are able to offer Life Insurance products. This is to ensure that all existing policyholders are effectively safeguarded against the potential failure of a Life Insurance office.
What does the future hold?
The Life Insurance industry is regularly changing with the introduction of new or amended legislation.
For example, the introduction of Life Insurance Code of Practice in July 2017 represents a significant update, and all Life Insurance companies are now bound by these guidelines.