3.1 Regulatory framework

The life insurance and general insurance industries are subject to several forms of regulation.

Both industries are subject to prudential regulation by the Australian Prudential Regulation Authority (APRA). Among other things, APRA is responsible for granting or refusing applications to carry on a life insurance or general insurance business in Australia.[1]

In addition, most contracts of insurance are ‘financial products’ for the purposes of Chapter 7 of the Corporations Act 2001 (Cth) (the Corporations Act).[2] By making an insurance contract, insurance companies are generally providing a ‘financial service’.[3] As a result, life insurance and general insurance businesses are generally required to hold an Australian financial services licence (AFSL), and are subject to financial services regulation under the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). ASIC administers and enforces those provisions.

The Insurance Contracts Act governs contracts of insurance and proposed contracts of insurance, the proper law of which is or would be the law of a state or territory.[4] ASIC has the general administration of the Act.[5]

Section 13 of the Insurance Contracts Act obliges both parties to an insurance contract ‘to act towards the other party, in respect of any matter arising under or in relation to it, with the utmost good faith’.[6] Failure to comply with that provision is a breach of the Act.[7] If reliance on a provision of the contract of insurance would be a breach of the duty, the party may not rely on it.[8] If an insurer has failed to comply with the duty in the handling or settlement of a claim or potential claim, ASIC may exercise its powers under Subdivision C of Division 4 of Part 7.6 of the Corporations Act, or Subdivision A of Division 8 of that Part, as if the insurer’s failure to comply were a failure to comply with a financial services law.[9] The first mentioned provisions deal with variation, suspension and cancellation of an AFSL; the second mentioned provisions deal with banning persons from providing financial services.

The Insurance Contracts Act also provides for the insured’s duty of disclosure,[10] specifies the consequences of misrepresentations by an insured,[11] and provides for remedies for nondisclosure and misrepresentations.[12]

The insurance industry has three industry codes of practice: the General Insurance Code of Practice, the Life Insurance Code of Practice, and the Insurance in Superannuation Voluntary Code of Practice.

The General Insurance Code of Practice came into effect on 1 July 1995 and has since been revised several times.[13] It is a voluntary code that binds all subscribing general insurers.[14] All members of the Insurance Council of Australia (ICA) that offer products covered by the Code are required to subscribe to the Code. Other industry participants may also subscribe. There are currently 174 subscribers to the Code, comprising approximately 97% of the general insurance industry.[15]

Nearly all types of general insurance are covered by the General Insurance Code, including home insurance.[16] The Code imposes obligations on general insurers when selling insurance, handling claims, dealing with third parties, managing catastrophes and handling complaints.[17] It also sets out timeframes for insurers to respond to claims and complaints.[18]

The Code is monitored and enforced by a Code Governance Committee, an independent body comprised of a consumer representative, an industry representative and an independent chair.[19]

The Life Insurance Code of Practice is binding on all members of the Financial Services Council (FSC) that issue life insurance policies, and on any other industry participant that adopts it.[20] The Code became binding on FSC members on 30 June 2017. [21] There are currently 26 subscribers to the Code,[22] representing the majority of APRA-registered life insurers.[23]

The Code imposes obligations on life insurers during the policy design phase,[24] when selling insurance,[25] and during the claims process.[26] It also includes provisions for dealing with consumers who require additional support.[27]

Compliance with the Life Insurance Code of Practice is monitored by the Life Code Compliance Committee.[28] Subscribers to the Code must report significant breaches of the Code to the Committee, and must implement corrective measures as agreed with the Committee.[29]

The Life Insurance Code of Conduct does not apply to superannuation fund trustees unless they specifically adopt it.[30] In late 2016, some industry bodies formed an Insurance in Superannuation Working Group to develop an industry code of practice for superannuation trustees.[31] The Insurance in Superannuation Voluntary Code of Practice came into effect on 1 July 2018.[32] It is a voluntary code dealing with matters such as benefit design, cessation of cover, claims handling, mechanisms for premium adjustment, communications with members and dispute resolution. Superannuation fund trustees who choose to adopt the Code agree to comply with the Code as early as they can, and by no later than 30 June 2021.[33]


[1] Insurance Act s 12.

[2] See generally Corporations Act s 764A; Background Paper No 14, 56–7 [3.5]–[3.7]; Background Paper No 29, 16 [5.7]–[5.8].

[3] Background Paper No 14, 56 [3.6].

[4] Insurance Contracts Act s 8.

[5] Insurance Contracts Act s 11A.

[6] Insurance Contracts Act s 13(1).

[7] Insurance Contracts Act s 13(2).

[8] Insurance Contracts Act s 14.

[9] Insurance Contracts Act s 14A(2).

[10] Insurance Contracts Act s 21.

[11] Insurance Contracts Act ss 23–27.

[12] Insurance Contracts Act ss 27A33.

[13] Exhibit 6.404, Witness statement of Robert Whelan, 27 August 2018, 11 [73].

[14] Background Paper No 14, 64 [5.1].

[15] Code Governance Committee, General Insurance in Australia 201617: Industry Practice and Code Compliance, 6.

[16] General Insurance Code of Practice ss 3.5–3.6.

[17] See generally Background Paper No 14, 65 [5.6].

[18] See, eg, General Insurance Code of Practice ss 7.16, 10.11–10.12 and 10.17–10.18.

[19] General Insurance Code of Practice, Governance and Monitoring (7 December 2018) General Insurance Code of Practice <http://codeofpractice.com.au/governance-and-monitoring>. See also General Insurance Code of Practice s 12.2.

[20] Life Insurance Code of Practice s 2.1.

[21] Exhibit 6.409, Witness statement of Sally Loane, 30 August 2018, 14 [9.1]; Background Paper No 29, 15 [5.4].

[22] FSC, Code of Practice (5 December 2018) FSC <www.fsc.org.au/policy/life-insurance/code-of-practice>.

[23] APRA, Register of Life Insurance Companies (5 December 2018) APRA <www.apra.gov.au/register-life-insurance-companies>.

[24] Life Insurance Code of Practice ss 3, 5.

[25] Life Insurance Code of Practice s 4.

[26] Life Insurance Code of Practice s 8.

[27] Life Insurance Code of Practice ss 6, 7.

[28] Life Insurance Code of Practice s 12.4.

[29] Life Insurance Code of Practice ss 13.4, 13.7.

[30] Life Insurance Code of Practice s 2.2.

[31] FSC, Insurance in Super Working Group (5 December 2018) FSC <www.fsc.org.au/policy/life-insurance/insurance-in-superannuation-working-group-iswg/>.

[32] FSC, Insurance in Super Working Group (5 December 2018) FSC <www.fsc.org.au/policy/life-insurance/insurance-in-superannuation-working-group-iswg/>.

[33] Insurance in Superannuation Voluntary Code of Practice s 3.6.