How COVID-19 is accelerating the insurance claims model

At its heart, life insurance should be simple. The insurer is paid a fair price in good faith for a policy which has been clearly explained. When the unexpected happens, the insurer responds quickly and fairly, and treats the insured with respect. Both parties win. 

However, as the Hayne Royal Commission revealed, not all providers were seen by the community to hold up their end of the bargain. Some of the most shocking case studies were engaged in wilful wrongdoing and claim avoidance, but these were a minority of the industry as a whole. 

Equally, however, the structure of the industry and providers’ business models were also responsible. Opaque policies and convoluted claims processes combined with conflicted commission and remuneration structures often resulted in inappropriate outcomes for Australian consumers. The effect was that trust in life insurance diminished. 

The good news is that the majority of life insurers are working hard to address the issues identified in the Royal Commission, and to comply with the Life Insurance Framework. While COVID-19 is still a monumental challenge, it may also be accelerating positive change in many areas. 

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HOW DID THE INDUSTRY END UP HERE?

There is no simple answer to this question, unfortunately. In addition to the conflicted remuneration and commission structures, the fact that life insurance is dominated by a relatively small number of key players, and that financial services in Australia are highly vertically integrated, have all contributed to the problems highlighted by Commissioner Hayne. 

Despite calls for bans on commissions, there are strong arguments for why they should be retained – it’s not a black and white issue. In many cases, work done by a distributor or broker is not charged as a separate fee. If it was, the argument goes, fewer Australians would seek or have access to life insurance, and the widespread problem of underinsurance would become worse. 

Indeed, many of the larger insurers continue to argue, post Royal Commission, that the removal of commissions will serve only to reduce competition in the market, increase consumer risk and ultimately empower large institutions. 

At the same time, the necessity of finding ways to control conflicts of interest within a commission structure is clear. There are risks inherent in a sales-driven, commission culture for both consumers and insurers. For consumers, it’s the risk that unscrupulous brokers can be financially rewarded for recommending unsuitable, but more profitable products. But for the insurer, commission structures aren’t nirvana either. In some ways they can create a disconnect between how a sales force is rewarded, and how a claims department could traditional be viewed as “successful” – that is keeping costs down (and paying as few claims as possible is one way of doing that). 

This is not to say that claims departments aren’t empathetic to claimants, or that they are eager to reject claims – but when performance targets are linked to the number of claims closed and healthy loss ratios, there is a clear incentive to make the claims process difficult. And this often makes the process adversarial. 

THE END OF PAINFUL PAPERWORK

It’s fairly standard across the industry that in order to lodge a claim you need to fill in a ‘paper’ claim form. Because these forms need to cover many variables, they are inevitably really (really) long, plus the claimant has to provide a lot of information the insurance company already has. This makes for a repetitive and frustrating process, especially for someone who is already going through significant injury or illness. 

A study by the University of Melbourne pointed to a growing body of research which indicates the claims process itself is actually responsible for heightened anxiety, stress and depression. The process is even described as the cause (or contributing factor) in secondary mental health claims on top of the initial claim. 

Heightened anxiety was attributed to the stress of needing to undergo numerous medical assessments and delays in processing benefits. Psychological distress and poor mental health were also seen to be more prevalent in those who make a claim versus those with the same injuries that don’t claim. 

As COVID-19 has disrupted how insurers operate, sending paper forms via snail mail has become more of a challenge with delays from Australia Post as well as delays in getting claim forms to workers who are now remote.

One approach, which is gaining more popularity through COVID-19, is the use of tele-claims. This lets you capture the information you need and nothing that you don’t. It’s also much quicker and there are less follow ups for additional information. 

ACCESSING TREATMENT THROUGH COVID-19 

Another significant area of disruption from a claim’s perspective is the ability for claimants to access medical treatment and support. In addition to physical distancing and travel restrictions, there has also been increased demand on many medical professions which has reduced their capacity. This is in addition to problems that clients in regional areas may have accessing specialised healthcare. 

Part of the solution to this is a more flexible treatment process that leverages digital healthcare solutions. Mental health is a great example and we’re seeing digital solutions perform equally (if not better) than their analogue alternatives. 

Tele-psychology, be it by phone, webcam, email or text message, has been around in one form or another for more than 20 years, but COVID-19 has escalated its adoption as more people become comfortable with using video conferencing for a variety of reasons.

The ease and convenience of scheduling a therapy appointment online and talking with a therapist from the privacy of your own home is, for some, a much better way to access mental health support. 

A SHIFT IN MINDSET

There is a growing view that the role of insurers isn’t just a financial settlement but that they should also focus on providing support and outcomes not just money. The reality is that most people who suffer a serious illness or accident, or have a family member die early, have never before dealt with such an event. They often have no experience with the hospital system, have never organised a funeral and are unsure of what is required and how to do it. An insurer should also provide the emotional and logistical support here too. This is consistent with a report from PwC on the changing expectations of consumers as a result of COVID-19. The report noted:

“In a world dealing with a global emergency, however, customers (and indeed, employees) are in need of even more when it comes to their relationships – in particular, a certain amount of compassion and care will go a long way to gaining loyalty. This means businesses being present when customers or staff need them, and supporting them in meaningful, human and relevant ways.”

This requires a personal relationship with the insured, one which is not adversarial, but which seeks to support. If both insured and insurer are transparent and fair from the beginning, the outcomes are far more likely to be better for both parties. 

This needs to be more than just supporting the claimant – it also means a close relationship with employers, medical professionals and other service providers as well. Because good relationships mean that when a problem with an employee is identified, even if it appears to be a relatively minor problem, the insurer can reach out early and offer support before events spiral out of control. Without strong relationships, or if the relationship is adversarial, claimants are less likely to work with the insurer to find win-win solutions – which means everyone loses. 

Ultimately, it is the claims experience which determines whether an insurer’s reputation thrives or dies so a simple, transparent and fair claims process is a great way to help demonstrate the value of life and income insurance and rebuild trust in the industry. 

Don Stevenson is head of claims at Integrity Life.