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Life Insurance (Conduct and Disclosure) Bill 1998
Bills Digest No. 13 1998-99
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official lega l status. Other sources should be consulted to determine the subsequent official status of the Bill.
Life Insurance (Conduct and Disclosure) Bill 1998
Commencement: The main provisions of the Act which may be cited as the Life Insurance (Conduct and Disclosure) Act 1998 , commence on the day to be fixed by Proclamation. In a number of instances the commencement date is linked to the commencement of other Acts.
The main purpose of the Bill is to introduce a range of consumer protection initiatives in relation to the life insurance industry. The measures include increased life company accountability, statutory remedies and sanctions, disclosure and other r equirements to improve the quality of information disclosure to consumers and to enable them to make informed decisions when purchasing or maintaining life insurance products.
At present, conduct within the life insurance industry is regulated t o a considerable extent by non-legislative instruments such as a Code of Practice and Circulars on disclosures relating to life insurance products issued by the Insurance and Superannuation Commission.
The Regulation Impact Statement(1) identifies the following problems addressed by the Bill:
a) serious information problems faced by consumers purchasing life insurance products which generally involve long-term contractual obligations
b) short comings in written and oral life insurance information/advice, in cluding sales material, and
c) marked disparities in knowledge and information between insurance suppliers and consumers which place consumers in a weak bargaining position.
Proposed section 3 sets out the object of the Act which is to ensure that owners of life insurance policies and beneficiaries of certain group policies receive all the information they require to make informed choices when engaging in life insurance activity. Proposed section 7 gives a wide definition of what is meant by engaging in life insurance activity. It includes entering into, varying, continuing or discontinuing a life policy as well as becoming, remaining or ceasing to be a group member.
Proposed section 8 makes it clear that providing general information to a person, without an analysis of that person’s particular needs and financial situation, does not constitute an implied recommendation that that person should engage in life insurance activity.
Proposed section 17 requires that a life company must as far as is reasonably practicable provide owners and prospective owners as well as group members and prospective group members the information they would reasonably require to engage in life insurance activity. A life company must also ensure that the information provided is not false or misleading in any material particular and that there are no material omissions. Proposed section 18 provides that regulations may make provision relating to the production and provision of information by life companies about life policies.
The Australian Securities and Investme nts Commission (ASIC) may under proposed section 19 give directions in writing to a life company if it appears that there has been a contravention of the provisions of proposed section 17 . The written notice may require the company not to do a specified act or require it to do a specific act. A life company is guilty of an offence if it fails to comply with a direction from ASIC within the period specified in the notice. There is provision for ASIC to revoke or vary a direction under proposed section 20 . ASIC may also issue stop orders under proposed section 21 if it appears that promotional material issued by a life company contains information that is false or misleading or where there is a material omission. A life company is guilty of an offence if it fails to comply with a stop order.
A person who engages in a life insurance activity and who suffers loss because that person relies on information provided by a life company is ent itled to recover that loss under proposed section 22 . The life company and the persons who were directors of the company when the information was provided to the person are jointly and severally liable under proposed subsection 22(2) . In addition to other relief granted in an action for recovery of loss or damage, the Court may make an order declaring a life policy void. In that event the Court may make an order for the payment by the life company to the plaintiff the amount paid by the plaintiff to the company including interest on that money.
Where a Court is satisfied that a life company has issued promotional material that contains information that is false or misleading or has a material omission it may under proposed section 23 order the life company at its expense to:
â¢ disclose information specified in the order to a specified person or persons; and or
â¢ issue promotional material whose terms are specified in the order.
If a life company provides a person with prescribed information that is false or misleading or with a material omission, the life company is guilty of an offence under proposed section 24 . ‘Prescribed information’ means under proposed subsection 24(3) , information which may include a description of benefits that would be available under a particular life policy or group policy, the circumstances under which those benefits would be available, the level of premiums payable, or the obligations which a person might be subject to if the person were issued with a particular life policy or became a beneficiary under a group policy.
Parts 3 and 4 have similar provisions to protect consumers from actions of life insurance advisers of life companies as well as life insurance advisers of life brokers. Further there are similar provisions in Parts 3 and 4 to impose civil liability on life companies/life brokers for failure to provide proper disclosures and the prescribed information in written advice to potential and existing life policy holders. The corresponding provisions in Parts 3 and 4 are therefore considered together for ease of reference.
Life Insurance Adviser to send Disclosure Statement to Client and to include certain information in advice
A life insurance adviser of a life company/life broker who offers or is asked to give a client a life insurance service must, after the adviser’s first contact with the client, send to the client a written disclosure statement containing the prescribed particulars. A life insurance adviser who fails to comply with this obligation imposed under proposed section 27/proposed section 37 , is guilty of an offence. The prescribed information is set out in proposed section 28/proposed section 38 and includes details of the benefit or advantage which the adviser has received or will receive whether directly or indirectly from giving advice or the issue of a life policy. The content of the disclosure statement may be prescribed by regulation as may the particulars to be included in advice given in writing.
Proposed section 29/proposed section 39 require that advice given to a person or client by a life insurance adviser must be reasonable in the context of that person’s objectives, financial situation and particular needs. This provision does not apply to life insurance advice in respect of a prescribed life policy, or a kind of life policy.
A life company is guilty of an offence under proposed section 30 , if the life company issues or varies a policy at the request of a person who has received advice from a life insurance adviser and that advice did not satisfy the requirements of proposed section 28 (including the requirement that the advice be in writing) or proposed section 29 , and the person has not indicated in writing that they did not rely on the advice.
The corresponding provision covering a Life Broker is in proposed section 40 .
A person may take an action against a life company/ life broker under proposed section 31/proposed section 41 in a court to recover an amount of loss or damage incurred as a result of relying on the advice of a life insurance adviser which did not meet the requirements of proposed sections 28 or 29 / proposed sections 38 or 39 .
If the life insurance adviser had failed to disclose the benefit or advantage derived by him or her in consequence of the advice given or the issue of a policy as required by proposed subsection 28(4)/proposed subsection 38(4) , it is a defence under proposed subsection 31(2)/proposed subsection 41(2 ) if the life insurance adviser was not aware of the benefit he would derive at the time the advice was given.
If a person (or group policy owner) suffered damages because they engaged in a life insurance activity on the basis of a statement made by a life insurance adviser and the statement is materially false, misleading or there is a material omission from the s tatement then the person may seek to recover the damages by taking action against the life company in court under proposed section 32/proposed section 42 .
Proposed s ection 33/proposed section 43 provide that a life insurance adviser who makes a statement or provides a person with information knowing that the statement or information is false or misleading in a material particular or has a material omission is guilty of an offence punishable on conviction by imprisonment for nor more than 12 months. The penalty is up to 6 months for a reckless offence.
Proposed section 45 provides that regulations may make provision for a Code of Practice for the Life Insurance Industry. Such regulations may include provisions for and in relation to the following:
â¢ preventing, as far as possible, the issue of life policies that are not appropriate to the needs of the persons to whom they are issued
â¢ ensuring that life companies, life brokers and life insurance advisers maintain at least the standard of service specified or described in the Code when dealing with owners and prospective owners of life policies, and with group members and prospective group members
â¢ ensuring that life insurance advisers are competent in providing life insurance advice;
â¢ ensuring that life companies and life brokers have adequate procedures for supervising the competence and conduct of their life insurance advisers
â¢ ensuring that life companies and life brokers have adequate procedures for dealing with inquiries and complaints by owners and prospective owners of life policies, and by group members and prospective group members, and
â¢ ensuring that, in the case of disputes that are not able to be resolved under procedures referred to in paragraph (e), owners and prospective owners of life policies, and group members and prospective group members, have access to a dispute-handling mechanism approved by ASIC.
Proposed section 46 provides that if it appears to ASIC that a life company or a life broker has contravened a provision of the Code by an act or omission, ASIC may issue a direction after notifying the company or broker in writing of its intention to do so at the end of a specified period. The direction may require the company or broker to perform a specified act or cease to perform a specified act. A life company or life broker is guilty of an offence if it does not comply with the direction.
Division 1 of Part 6 provides that a life company must have a compliance committee. Proposed section 50 provides that the compliance committee should be given functions to assist the company in consumer related issues. In addition, it provides that the life company must arrange for the compliance committee to have sufficient powers to obtain all necessary information from the company to carry out its functions.
Most significantly, a member of a life company’s compliance committee has qualified privilege in respect of any report or statement about the company’s operations made to the directors or the company as a member of the committee. This privilege is in addition to any privilege conferred on a person by any other law.
Division 2 of Part 6 provides the means by which ASIC is able to monitor compliance by a life company or a life broker. Proposed section 53 provides for the appointment of authorised persons by ASIC to inspect, take extracts from, or make copies of, any records which a life company must keep under proposed section 55 .
ASIC is also given powers under proposed clause 54 to call for information by written notice from any person who has information relating to the business of a specified life company or life broker. A person is not excused from giving information or producing records or a copy of a document under proposed section 54 or 55 on the ground that the information or the production of the records or copy, as the case may be, might tend to incriminate the person or make the person liable to a penalty. However, if the information is given or the records or copy are produced by the person, the information or the records or copy, and any information or thing (including any document) obtained as a direct or indirect result of the giving of the information or the production of the records or copy, as the case may be, is not admissible in evidence against the person in any proceedings.
Proposed section 57 provides for access to premises by an authorised person to inspect records and take extracts or make copies. However, access to premises can only take place with the consent of the occupier of the premises.
This p art deals with matters such as the collection of statistics, jurisdiction of the Courts, powers of injunction, review of decisions, representative actions by ASIC and the making of regulations under the Act.
Proposed section 60 provides for a rebuttable presumption to operate in actions brought against a life company or life broker for loss or damage incurred as a result of relying on advice of a life insurance adviser. This provision places an onus on a life company or a life broker to produce records to rebut allegations of misleading advice in legal proceedings.
The Regulation Impact Statement states that the measures in the Bill have received general acceptance from industry bodies, consumer groups, professional bodies and others in a wide ranging consultation process. Further, it states that it is anticipated that the operation of these measures will be reviewed in conjunction with proposals to implement the Corporations Law Economic Reform Program (CLERP).(2)
The measures in the Bill provide consumer protection measures to owners and potential owners of life policies and group policies, in addition to those available under the operation of the Life Insurance Act 1995 , the Insurance (Agents & Brokers) Act 1984 and the Trade Practices Act 1974 . This is clearly provided for in proposed section 14 .
Under Government’s Corporate Law Economic Reform Program (CLERP) it is envisaged that there will be a single licensing regime for financial advisers.(3) The measures in this Bill deal with controlling the activities of the life insurance advisory service, which is a sector of the financial advisory service. However, when the CLERP proposals are implemented in full, the measures in this Bill may be incorporated into an omnibus Act for regulating all the activities of financial advisers in a consistent manner.
The Commonwealth relies on its insurance power under paragraph 51(xiv) of the Constitution to regulate the life insurance industry, apart from State insurance that does not extend beyond the limits of the State concerned. In addition, it relies on the corporations power under paragraph 51(xx) of the Constitution. This is implied by proposed sections 9 and 10 of the Bill.
1. Explanatory Memorandum to the Life Insurance (Conduct and Disclosure) Bill 1998, p. 3
2. ibid., p.5
3. Corporate Law Economic Reform Program; Reform No. 56 & 57, pp 25-26
27 August 1998
Bills Digest Service
Information and Research Services
This paper has been prepared for general dist ribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.