Synchron is issuing an urgent call to life insurers to clarify how they will treat policies that lapse, change ownership, change premium structure, or need corrections, under the new Unfair Contract Terms (UCT) regime, due to come into effect on 5 April, 2021.

Synchron Director, Don Trapnell, said, “Our understanding is that lapsed policies, policies that change ownership – for example from inside to outside super and the other way round, a change from level to stepped premiums and even simple typo corrections to a policy, will mean the policy has to be rewritten, which under the new regime means a new contract.”

Mr Trapnell said he was alerted by a Synchron adviser that insurers are responding in different ways to the new regime and so clarification is necessary.

“If, for example, a policy lapses, will the insurer treat the ‘new’ contract as a replacement policy, or will they take advantage of the new regime to force policyholders into a completely new policy? If so, will the policyholder have to have medical underwriting? Will they be forced onto a different premium structure? Will they lose a key benefit not available in the new policy?”

Mr Trapnell said the way life insurers respond may compound Australia’s underinsurance problem. 

“One of the big worries here is if we have tougher reinstatement, or additional underwriting, more policies will lapse, leaving more people without the protection they need,” he said. “That’s a very poor outcome for Australia and for Australians.” 

He said the flow-on effect of tougher reinstatement is there would likely be a massive spike in lapse data, which would obviously increase Life Insurance Framework lapse rates.

“In the best interests of policyholders and to assist the advisers who work with them, we believe life insurers must now publicly share how they intend to deal with this issue.”