The independent review of the Life Insurance Code of Practice has released its Final Report, recommending substantial changes to the standards that apply to life insurers.
The report contains 85 recommendations. Most would require changes to the Life Code. The practical direction is clear: the Code should be clearer, more consumer-focused, more enforceable, and better aligned with current expectations regarding vulnerability, mental health, claims handling, hardship, and complaints.
For financial advisers and licensees, this is not just an insurer issue. The proposed changes have direct implications for life insurance advice, product comparison, replacement advice, underwriting support, claims advocacy and supervision.
What is the central issue?
Mental health is the most significant issue in the report.
The review recognises that life insurers are facing sustainability pressures due to rising mental health claims. However, it does not permit insurers to exclude mental health cover altogether. The report recommends that total exclusions for mental health conditions in standard-form contracts be prohibited, even where such exclusions might otherwise be legally arguable under discrimination law.
At the same time, the report accepts that narrower product design limitations may be appropriate, provided they are supported by actuarial or statistical data, other relevant factors, anti-discrimination law and further industry guidance.
That creates an important advice issue. Advisers will need to understand not only whether a policy includes mental health cover, but how that cover works, whether any limitation materially affects the client, and whether the client understands the consequences of choosing a cheaper or narrower product.
Why does this matter for advice?
Life insurance advice already requires careful comparison of benefits, exclusions, premiums, sustainability and underwriting outcomes. The proposed Code changes underscore the importance of clearly documenting those comparisons.
The report recommends clearer consumer explanations when insurers decline cover or offer it on non-standard terms. Insurers should provide written reasons and, on request, a plain-English summary of the actuarial, statistical or other data relied on.
This may assist advisers and clients when reviewing underwriting decisions, challenging outcomes, or considering alternative cover. It also means advice files should capture the client’s understanding of exclusions, loadings, limitations and alternative terms.
What else changes?
The report recommends a stronger vulnerability framework. Insurers would be expected to recognise that anyone can become vulnerable, adopt principles consistent with AS 22458, and respond more proactively where vulnerability risk factors are identified. These risk factors include bereavement, cognitive impairment, trauma, sexual orientation, gender identity and sex characteristics, and family violence, including financial abuse.
Family and domestic violence is also given greater prominence. The Code should require insurers to do everything reasonably possible to protect affected customers and their families, protect privacy and confidentiality, and incorporate Safety by Design principles into new products.
Financial hardship obligations would also be strengthened. The report recommends clearer hardship indicators, including arrears, failed payments, requests to reduce cover, legacy product affordability issues and requests to repay overpaid benefits. Where those indicators are present, insurers should ask customers about their circumstances and whether support is required.
Claims handling is another major focus. The report recommends clearer claims updates, a real-person primary contact for all claims, clearer explanations where information is requested, more structured handling of delays, shorter timeframes for reopened claims, clearer use of “Circumstances Beyond our Control”, and limits on surveillance.
The report also recommends clearer premium communication early in the sales process. Insurers should explain the difference between variable and variable age-stepped premiums, likely premium increases, the impact of discount cessation and examples of premium changes over time.
What does this mean in practice?
For advisers, the report reinforces the need to treat life insurance advice as a long-term suitability exercise rather than a point-in-time product comparison.
Where a recommendation involves mental health exclusions, reduced cover, altered benefit periods, premium discounts, stepped premiums or replacement of existing cover, the advice file should clearly explain the trade-offs. The lower the premium or the narrower the cover, the more important it is to show that the client understood what they were giving up.
For licensees, the report is a prompt to review insurance advice standards, file review checklists and adviser guidance. In particular, licensees should consider whether their supervision framework adequately tests mental health cover, premium sustainability, vulnerability indicators, claims support and underwriting outcomes.
What should licensees do now?
Licensees shouldn’t wait for the Code to be amended before responding. The report signals the direction of travel for insurer conduct and community expectations.
Practical steps include updating life insurance advice templates, reviewing replacement advice standards, checking how advisers explain mental health exclusions or limitations, testing whether premium sustainability is properly addressed, and ensuring claims assistance is treated as a supervised client service activity.
The report is also a useful reminder that insurance advice is increasingly being assessed through the lens of consumer understanding, vulnerability and long-term product value. Advisers who can evidence those issues clearly will be better placed to demonstrate that their advice is defensible.