Life Insurance Act 1995 – Regulating Australia’s Life Insurance Industry

life-insurance-act-1995-photo1 This piece of legislation was originally formulated in 1945 to regulate the financial service providers offering life insurance products. In 1995, it was embedded with the Contemporary Act. The Life Insurance Act 1995 ensures that insurers provide policy holders their benefits on claims. It also ensures that the insurers deal with life insurance contracts in the appropriate manner. Lastly, it regulates life insurance contract sales.The Act aims at protecting the policy holders’ and potential life insurance applicants’ interests while ensuring that the industry maintains competitiveness and innovation.

Main Objectives of the Act

Australia’s Life Insurance Act 1995 mainly aims at six things:

1) restricting life insurance sales to companies suitable and eligible for life insurance sale,

2) controlling requirements for companies offering life insurance in order to ensure life insurance business management that is prudent,

3) enabling supervision by ASIC and APRA of companies offering life insurance,

4) providing legislative management to companies that are performing poorly,

5) giving provisions for companies in case they are going under in order to protect policy holders, and

6) supervising transfers and amalgamations of companies.

Life insurance Company Registration

The main requirements stipulated by the Act for the registration of a life insurance company involve

1) maintaining a minimum of 10 million dollars outside the statutory fund,

2) companies having at least an additional 5 million dollars of eligible assets, and

3) capital being made up of ordinary or redeemable preference shares for those companies limited to shares.

Any company looking to offer life insurance services must abide by these regulations.

Statutory Fund regulation

Strict controls have been put in place by the Act regarding the requirements of life insurance companies in handling statutory funds. They include:

1) crediting to the business of the fund amounts received by the company,

2) inclusion of the assets and investments of a business within the fund,

3) only availing the assets for expenditure according to the fund’s conduct,

4) not cancelling or restructuring the statutory funds without approval from the APRA and

5) dealing with the profits and losses of the fund in a manner protecting the interests of policy holders and also being consistent with prudential guidelines for management of funds.

Fund Requirements for companies

The Act also stipulates that life insurance companies should have at least one statutory fund at any given time, the maintenance of exclusive statutory funds for business with investment-connected benefits by companies carrying life insurance for them, and having an exclusive fund(s) for businesses by companies transacting life insurance outside Australia.

Judicial Manager Appointments

If APRA discovers that the funds of policy holders are under threat, then a judicial manager is appointed for the sole purpose of ensuring that business continues and the policy holders receive payment of their benefits whenever it is required. For a judicial manager to be appointed, the company should have failed to comply with Section 68 of the Act, be poorly managed or in a financial position that is not satisfactory, or if the time to complete full company investigations would fail to be in the interests of the holders of policies. Visit APRA for more info regarding on life insurance act 1995.

Amalgamations and Transfers

The regulator is given power by the Act to reject or accept an amalgamation of life companies. According to the Act, there can be no transfer or amalgamation unless there is approval under a court scheme.

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