Australia’s life insurers have been delivered a relatively clean bill of health on claims handling by the Australian Securities and Investments Commission (ASIC).
However, it did identify issues around total and permanent disability (TPD) and warned insurers that the need to be objective with respect to their internal review processes or risk action on the part of the regulator.
In an examination of claims handling by the major insurers prompted by the controversy surrounding CommInsure, the ASIC found that there was no evidence of “cross-industry misconduct across the life insurance sector in relation to life insurance claims payments and procedures”.
It said that, overall, where a decision had been made, 90 per cent of claims were paid in the first instance and that for death claims where a decision had been made, on average 96 per cent of claims were paid.
“However, we did identify issues of concern in relation to declined claim rates and claims handling procedures associated with:
- particular types of policies, notably TPD;
- particular insurers (typically for particular policy types); and
- particular causes for consumer disputes.”
It said these concerns would be the subject of further action on the part of ASIC.
The ASIC report said that although the considerable majority of claims were paid, it was concerned that in some cases, claims were being declined on technical or contractual grounds “that are not in accordance with the ‘spirit’ or ‘intent’ of the policy”.
“We identified that fairness should be given greater consideration by insurers. Not all insurance claims will be successful, but an issue arises when a policyholder’s reasonable expectations about policy coverage do not align with the technical wording in the policy,” it said. “On this point, a key challenge for the life insurance sector is how to deal with that small number of claims that may not technically be covered under the ‘fine print’, but under any reasonable consumer or community expectation should be paid.”
The ASIC report found that ex-gratia (i.e. goodwill) payments were inconsistently applied across the sector and cautioned that poor and/or inconsistent management of these relatively small numbers of claims can lead to very poor outcomes for consumers and significant reputational damage for insurers.
Dealing with the internal review processes of the insurers, the ASIC report said it had obtained from insurers the preliminary results of their independent reviews and that while those processes were still underway, they had not identified significant concerns with claims decisions.
“If we identify concerns with an insurer as part of our follow up work, the fact that an insurer failed to identify these concerns despite conducting an independent review will be a significant consideration in determining the regulatory action that we take,” it said.
