Mark May 8 as a possible D-Day for the beleaguered life insurance industry, which is anxiously waiting for Treasurer Scott Morrison’s 2018/19 budget.

There are fears the Treasurer may adopt proposals made by the bipartisan Parliamentary Joint Committee (PJC) on Corporations and Financial Services after an inquiry into the industry.

Even if the Government shelves its response until later in the year or beyond, the industry should brace for Canberra to further tighten the screws on life insurers and other financial services providers.

Many of the PJC proposals share a common theme: more regulatory oversight is required to repair the life industry’s battered image and win back public trust.

It is clear the committee, after a thorough 18-month probe, isn’t convinced that steps taken by the industry go far enough to adequately protect consumers and deter poor conduct.

Key areas in need of substantial reform include consumer protection, codes of practice, the remuneration model, group life insurance, genetic information and claims handling.

“The life insurance industry is a significant part of the financial services sector in Australia,” PJC chairman Steve Irons says in the report. “It has a noble purpose in providing financial protection to policyholders in times of need and financial distress.

“Despite this, there are sections of the industry that can and must do better in delivering the protection they promise while remaining financially viable long into the future.”

The report is a huge setback for the industry, which has been working hard to convince the Government and consumer advocates it is on the mend.

One particular PJC proposal stands out, perhaps best summing up the regulatory storm heading in the industry’s direction: that life insurance and insurers be subject to the Banking Executive Accountability Regime (BEAR).

As the name suggests, BEAR is designed to enhance responsibility in the banking sector.

It arms the Australian Prudential Regulation Authority with the power to remove or disqualify directors and impose financial consequences on individuals and banks.

While BEAR takes effect in July, calls for the regime to be extended to the life industry were heard as early as last year. They were led by Greg Medcraft, then chairman of the Australian Securities and Investments Commission (ASIC), who wants a similar approach to the UK’s executive accountability regime.

The life insurance industry’s peak body the Financial Services Council (FSC) is – as you might expect – not so sure about that.

The peak body for the $233 billion industry “does not support the committee’s recommendation to extend [BEAR] to life insurers because it was specifically designed for authorised deposit-taking institutions and there has been insufficient consultation with industry about this proposal”, it says.

The FSC and counterparts, including the Association of Superannuation Funds of Australia (ASFA), may have their work cut out avoiding the Government’s BEAR.

The Life Insurance Code of Practice and the superannuation code of practice, the signature clean-up acts of the FSC and Insurance in Superannuation Working Group (ISWG) respectively, have earned only lukewarm praise from the PJC.

While their efforts are applauded, the committee agrees with consumer advocates that the self-regulatory codes feature too many shortcomings to work effectively.

“The committee welcomes the recent development of two codes of practice in the life insurance industry,” Mr Irons says. “However, the committee is not convinced that a self-regulatory approach is sufficient.”

The codes are not approved by ASIC. And even if the regulator did approve one, it has no power to enforce the code.

The PJC says the Government should consider a co-regulatory approach to governing the codes and give ASIC power to undertake enforcement action when breaches occur – a development that general insurance groups would do well to keep an eye on.

But ASFA says the code it helped develop as a member of the ISWG is already prompting positive changes before its commencement in July.

“A number of funds have reduced premiums, altered benefit designs, enhanced communications with members and invested heavily into claims handling processes to streamline the experience for people claiming,” ASFA Chief Policy Officer Glen McCrea told insuranceNEWS.com.au.

“This clearly demonstrates that self-regulation delivers positive outcomes for consumers. The code will enhance the steps that have already been taken across the industry.

“Industry should be provided reasonable opportunity to implement the code and demonstrate its effectiveness prior to any regulatory sanction.”

He does not agree with the PJC’s call for a merger of the two codes, because they oversee separate industries with distinct obligations.

“Superannuation trustees must carefully balance retirement income concerns and insurance outcomes and this is reflected in their code,” Mr McCrea says. “The most important consideration for policymakers is that each code delivers the best possible outcomes for consumers.”

The FSC told insuranceNEWS.com.au work is under way on a second version of the life insurance code, and it expects to start public consultation this year on improvements that align with a number of the PJC proposals.

“This is a complex report with 48 recommendations, which the industry is considering and taking very seriously,” the FSC says.

“The industry was mindful that when introducing its first [code] it needed to be a good foundation for ongoing reform. The industry will continue its work to improve life insurance practices to better support consumers, and will be focused on the Government’s response to the PJC recommendations.”

With a history of being lumped in with the life industry when regulatory change emerges in the financial services sector, general insurance groups have little choice but to maintain a wary watch on developments.

The life industry has been put on notice, and the countdown to D-Day continues.