A journalist recently asked “So, has the conduct of insurance companies changed since the introduction of the Code of Practice and subsequent to the Royal Commission?”
“Oh, absolutely” was the immediate response.
“In what way?” came the follow-up question.
“Well, from what I can see things are decidedly worse.”
The three situations below have involved interaction with insurers over the last three months. Whilst names and dates have been amended to enable anonymity, the essential facts remain.
SUPER INDUSTRY FUND NOT SO SUPER
In 2005, Dennis joined an industry fund. He maintained a relatively small account balance to which was attached default cover.
On 4 August 2014, Dennis completed a Change of Member Details form to advise the fund of his new address and updated beneficiaries following the birth of a second child.
Unwittingly he dated the form 2010. Dennis heard nothing to the contrary so he reasonably assumed that his instructions had been carried out.
On 11 November 2017, the fund wrote to Dennis and advised him that his account balance was less than $10,000 and employer contributions were not being made, thus his insurance would lapse in 30 days’ time unless remedial action, as detailed in the letter, was enacted.
Unfortunately, the letter went to Dennis’s previous address because the fund had not altered his details despite the instructions given in 2014. As a result, the letter was not received and Dennis’s insurances duly lapsed.
In October 2018, Dennis was diagnosed with cancer and it was only when he contacted the insurer to make an income protection insurance claim that he was made aware his cover was no longer in place and why it had lapsed.
Realising that his change of address request in 2014 had not been actioned, Dennis wrote to the fund, formally advised them what had happened and asked that his insurances be reinstated so that his claim could be considered on its merits.
It took almost two months for the fund to come up with a number of reasons why the failure to update Dennis’s address details was not their fault, including:
“The Change of Member Details form was received by fax 5 August 2014 but was dated 4 August 2010. As the form was well over 90 days old (six years), it was only possible to update the beneficiaries not the address details”
Several things were clear:
- The fund had made a conscious decision to not update the address details;
- The fund had not thought to question if the date on the form was 4 August 2010 and it was received by fax 5 August 2014, perhaps the year might have been completed in error;
- The fund had not checked the print date on the form which, in the bottom right corner was shown as “03/14” – in other words, for the fund’s position to hold merit, Dennis would have needed to sign the form almost four years prior to it being printed;
- The fund was evidently comfortable to change beneficiary details but not address details based on a form that was judged to be more than 90 days old; and
- The fund cannot count as 2010 to 2014 is four years not six years.
The other reasons given by the fund for not actioning Dennis’s instructions were equally lacking in merit.
A response to the fund’s position was made with a further request that the insurances be reinstated.
This time it took three months for the fund to come up with a new reason not to correct its error:
“Unfortunately, we are unable to offer an extension to the lapsed insurance cover as our insurer, (NAME), has declined to support this request. The insurer has advised that they cannot offer the option to extend your cover that has lapsed, back-dated to 2017, given the length of time since the cover had lapsed and the impact a decision like this would have on the pricing and risk for all members of the fund.”
Not only is the above essentially cobblers but neither the fund nor the insurer, in any way addressed the crucial issue, i.e. the policy lapse arose out of the funds failure to carry out Dennis’ instruction.
If a financial services institution fails to carry out the reasonable request of a policy owner, is it unreasonable to suggest that the policy owner should not be financially prejudiced as a result of the failure?
Dennis’s matter is ongoing.
PONTIUS PILATE; ALIVE AND WELL
Mary was on a long-term income protection insurance claim, the validity of which was not in question.
In 2018, the insurer wrote to Mary and advised it had discovered an error in the calculation of benefits over the duration of her claim. A full reconciliation had been undertaken and the outcome was that an amount of $20,000, which included interest, had been credited to her account. The usual apology for any inconvenience caused, was given.
For all intents and purposes, the insurer had done the right thing.
Unfortunately, two additional, but not surprising, flow-on problems were created for Mary:
- the lump sum payment impacted adversely on her means-tested Centrelink benefits; and
- it put Mary into a higher tax bracket than would have been the case had the income protection payments been spread over the duration of the claim.
Indicatively, the impact of the above came to around half of the lump sum payment.
The insurer was contacted and provided with the relevant facts and documents, and asked if it could use one of its internal resources to calculate the exact amount of Mary’s loss, and provide her with additional compensation in a way that would not lead to a new bout of problems.
The insurer’s financial specialist replied “Having paid the underpaid amount, we have no further responsibility in this matter”.
A referral to the insurer’s ‘client advocate’ aka internal dispute resolution person, eventually brought the following, equally unhelpful, advice:
“(INSURER) recommends that Mary seeks advice from a qualified accountant with regard to the payments which have been made …… in order to confirm how these payments are treated by the Australian Tax Office and may influence the entitlement to additional benefits under family assistance law.”
Organisations are capable of making errors but, if an error is made the insurer should not only correct it but do so in a consultative way such that the policy owner is not financially prejudiced, including the cost of professional referrals.
Mary’s matter is also ongoing.
DUE PROCESS IN REMISSION
Thomas had been on a mental and nervous disorder income protection insurance claim for several years.
Initially benefits were paid on a total disability basis; eventually, however, Thomas managed to return to work in a less demanding and stressful role such that benefits reverted to something approximating 50 per cent partial. Benefits were paid monthly in arrears, on the 10th of each month.
Thomas regularly saw his general practitioner and a psychologist, in regard to his ongoing condition.
In October 2018, Thomas attended an insurer-arranged neuropsychological examination. The subsequent report concluded, in part:
“Speed of information processing is the main area of functioning in which significant dysfunction was demonstrated. This also impacted on the speed with which (Thomas) was able to sequence and visually scan over information …… Slowed processing speed suggests that (Thomas) may experience some difficulty working under time pressure and meeting tight deadlines.”
Notwithstanding the above, the examination report concluded that, provided Thomas used coping strategies, he should be able “to complete the duties associated with the role of private banker”, Thomas’s pre-illness occupation.
Thomas’s insurer continued to pay partial disability benefits through to March 2019 when a second independent examination was undertaken; this time with a consultant physician.
The subsequent report largely agreed with the October 2018 findings, adding that Thomas “has only seen a psychologist and there have been no inpatient admissions ….. his adjustment disorder is now in remission ….”
The examiner made no mention of why Thomas’s condition might have been in remission, for example, he was avoiding exacerbating stressors such as working under time pressures and trying to meet tight deadlines, nor was comment made about what might trigger his condition coming out of remission.
On 9 July, the day prior to the June benefit payment being due, the insurer wrote to Thomas and advised that “You have been assessed as no longer suffering any diagnosable or incapacitating condition that prevents you from returning to work in your pre-disability role.”
The same letter noted that a copy of the above reports had been sent to the treating general practitioner. There was no mention of whether a copy had been sent to the treating psychologist.
Crucially, however, neither the treating general practitioner nor the psychologist were asked to opine in regard to the report findings.
Independent medical examinations have been criticised in the past coming out of a perception of examiner cherry-picking and the inadequacy of opinions based on a single examination versus that of the treating practitioner’s opinion based on a much longer-term exposure to the patient.
Even setting that aside, it is relevant to note that an insurer seeking to take action in regard to an alleged non-disclosure, provides the claimant with an opportunity to respond prior to the insurer making a final decision. Generally, income protection insurance benefits continue during this period. This is called “due process.”
Apparently, for some insurers, due process is in remission when it comes to the cessation of a claim where there is no suggestion of non-disclosure.
Whilst Thomas’s matter is ongoing, the insurer has conceded that the actions taken were less than ideal and has now sought an opinion from the treating general practitioner.
CODE COMPLIANCE WOULD BE A GREAT START
Section 8 of the Life Insurance Code, is headed “When you make a claim” and sub-section 8.5 indicates:
“We will only ask for and rely on information and assessments that are relevant to your claim and policy, and we will explain why we are requesting these. This can include, for example, financial, occupational and medical information. If you disagree with the relevance of any information, we will review the request, and if you are not satisfied with our review we will tell you how you can make a complaint.”
This makes three things clear:
- An insurer will only ask for information and assessments that are relevant to the claim and policy; and
- Having identified that information and assessments are relevant, an explanation will be provided to the claimant, or their representative, explaining the relevance of the information and assessments to the claim and the policy; and
- The nature of the explanation will be sufficiently detailed to enable an informed decision to be made by the claimant or their representative to agree to provide that which has been requested or to challenge said relevance.
Has the presence of sub-section 8.5 made a difference?
Example — A recent question put to an insurer after a request was made by the insurer for a claimant to sign a Medicare/PBS report authority:
“I noticed that the claim pack requested that my client sign a Medicare Report Request that was pre-populated such that a report dating back to 1984 could be obtained.
Similarly, the Pharmaceutical Benefits Scheme Report Request was pre-populated to 2002. Could you please advise why reports going back so far are required?”
The response: “As for the Medicare and PBS Authority, those dates have been pre-filled to enable our assessor to obtain all the information needed to assess the claim.”
By definition, sub-section 8.5 above already resides in the Code so why is compliance with it not evident?
It would be meanspirited to suggest that efforts and changes have not been made and no doubt improvements have occurred in some areas since the introduction of the Life Insurance Code of Practice and the Royal Commission. It would, however, be naïve in the extreme to think that the Code and the Commission have been panaceas, solving all the problems that led to their creation.
Inexperience and intent remain and with them examples of poor behaviour. Adviser vigilance is even more necessary and important when it comes to client protection.
Col Fullagar is the principal of Integrity Resolutions.