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CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
Life Insurance (Conduct and Disclosure)
Bill 1998
Date Introduced: 2 July 1998
House: House of Representatives
Portfolio: Treasury
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 requirements 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 to 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:
-
- serious information problems faced by consumers purchasing life
insurance products which generally involve long-term contractual
obligations
- short comings in written and oral life insurance
information/advice, including sales material, and
- marked disparities in knowledge and information between
insurance suppliers and consumers which place consumers in a weak
bargaining position.
Part 1 -
Preliminary
Definition of Engaging in Life Insurance
Activity
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 8makes 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.
Part 2 - Duties of Life
Companies
Duties of Life Companies to Provide
Information
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 18provides
that regulations may make provision relating to the production and
provision of information by life companies about life policies.
ASIC may issue Directions and Stop
Orders to Life Company
The Australian Securities and Investments
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 21if 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.
Civil Liability for False or Misleading
Information supplied by Life Company
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 entitled 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.
Court may Order Life Company to Disclose
Information or Publish Advertisement
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:
-
- disclose information specified in the order to a specified
person or persons; and or
-
- issue promotional material whose terms are specified in the
order.
Criminal Liability for False or
Misleading Information supplied by Life Company
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.
Part 3 and 4 - Conduct of Life
Companies and Life Brokers and their Life Insurance
Advisers
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.
Life Insurance Advice must have a
Reasonable Basis
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.
Life policies must not be issued or
varied in certain cases
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.
Life Company's / Life Broker's Civil
Liability for certain lapses of Life Insurance Adviser
A person may take an action against a life
company/ life broker under proposed section 31/proposed
section 41in 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 statement 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.
Criminal Liability of Life Insurance
Adviser for False or Misleading Statements in Advice
Proposed section 33/proposed section
43provide 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.
Part 5 - Code of Practice for
the Life Insurance Industry
Proposed section 45provides
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:
-
- 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
-
- 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
-
- ensuring that life insurance advisers are competent in
providing life insurance advice;
-
- ensuring that life companies and life brokers have adequate
procedures for supervising the competence and conduct of their life
insurance advisers
-
- 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
-
- 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.
ASIC may give Directions to ensure
compliance with the Code
Proposed section 46provides
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.
Part 6 - Compliance
Provisions
Division 1 of Part 6 provides that a life
company must have a compliance committee. Proposed section
50provides 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 53provides 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 54to 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 57provides 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.
Part 7 -
Miscellaneous
This part 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 9and
10of the Bill.
-
- Explanatory Memorandum to the Life Insurance (Conduct
and Disclosure) Bill 1998, p. 3
- ibid., p.5
- Corporate Law Economic Reform Program; Reform No. 56 & 57,
pp 25-26
Bernard Pulle
27 August 1998
Bills Digest Service
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ISSN 1328-8091
© Commonwealth of Australia 1998
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