Is ASIC up to it?
The Australian Securities and Investments Commission (ASIC) has signalled that in the wake of the controversy around claims handling within Comminsure it will be taking a good, hard look at the claims-handling practices of the major life/risk companies.
However, an important question arises for ASIC: Does it possess any personnel with the industry experience and product knowledge necessary to carry out such an examination?
While the leaks and accusations which have surrounded Comminsure have brought the claims-handling practices of life/risk insurers into focus, in reality they have been the subject of criticism and complaint for many years during which ASIC never saw fit to act, notwithstanding a focus on remuneration in the sector.
No one in the upper echelons of ASIC should be seeking to gain kudos from pursuing the claims handling issue in 2016. There is abundant evidence that it was an area of consumer concern that was being overlooked by the financial services regulatory authorities.
It is now nearly 18 months since Money Management's veteran columnist and life/risk specialist, Col Fullagar wrote a column "Claims handling - death by policy" in which he detailed the trauma being experienced by people as they sought to deal with insurance company claims department.
He wrote that he was aware of "situations where the claims management process has given and continues to give rise to stress for the claimant that arguably far outstrips their financial loss".
Fullagar said the catalyst for him making the claims in his column came out of having two weekends in a row interrupted by clients making contact in various states of "meltdown" attributed by them to the actions of their insurer in managing their claims.
"Each was having thoughts of self-harm resulting in treating doctors being contacted. In each case, their despair was not without reason," he said.
"These incidents are not isolated. The extent to which the claims management process endangers the medical well-being of claimants and the frequency with which it occurs is unknown; quite simply because no serious investigation has taken place," Fullagar said.
He said the fact the claims management process could and had endangered the medical wellbeing of some claimants was an unequivocal fact supported by adviser/claimant feedback and personal experience.
So, there you have it. Putting aside internal leaks and external complaints which gave rise to the situation faced by Comminsure in February/March 2016, the regulators ought to have been aware in September 2014, that problems were being experienced with respect to life/risk claims handling that probably warranted examination.
It is worth noting that at the time when Fullagar wrote his column, ASIC was fully engaged in the processes around its report into the life insurance industry which gave rise to the Trowbridge Report which, in turn, gave rise to the Life Insurance Framework (LIF).
The initial ASIC report was based on its insistence that some life/risk advisers were indulging in policy "churn" although the degree of that churn and the manner in which it could be accurately identified was never precisely resolved.
However, it was during the debate around the proposed Trowbridge changes that it was pointed out by many life/risk advisers that a significant justification for the high up-front commissions they were receiving was the manner in which they assisted their clients not only in identifying the most appropriate policy for their needs but at claims-handling time.
While the claims-handling practices of insurers may not have been front and centre for ASIC until late last month, its sister regulator, the Australian Prudential Regulation Authority (APRA) was well aware of the manner in which the insurers were seeking to deal with worsening balance sheets - particularly those with large exposures to group insurance and Total and Permanent Disability claims. At the same time, the Superannuation Complaints Tribunal (SCT) which sits under ASIC's Budget umbrella was witness to the consequences of the eroding claims experience as super fund members decided to make complaints to the SCT or go direct to the courts via the use of plaintiff law firms.
So as ASIC and, indeed, APRA look to what might be done to identify problems and improve claims-handling across the life/risk sector, they might also care to have a look at their own performance.
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