Life insurance Code of Practice: Ideal or idiotic?

Col Fullagar examines the claims section of the Life Insurance Code of Practice and believes while the code is a commendable beginning it has a long way to go.

The Life Insurance Code of Practice arose like Icarus out of the 2015 Trowbridge report that investigated various Australian Securities and Investments Commission (ASIC) concerns relating to the financial services industry.

The code became mandatory to participating organisations from 30 June 2017.

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What is the Life Insurance Code of Practice? 

In its own words:

“The code is the life insurance industry’s commitment to mandatory customer service standards.

It has been voluntarily developed by the life insurance industry through the Financial Services Council to:

1) Promote high standards of service to consumers
2) Provide a benchmark of consistency within the industry
3) Establish a framework for professional behaviour and responsibilities
4) Designed to protect you, the consumer.”

Immediately, the cynic will cite:

  • “Mandatory service standards” implies a base entry-level rather than “high standards” or, even better, best practice;
  • Some parts of the industry already display a “benchmark of consistency” which is arguably why the industry struggles under its current reputation; and
  • Rather than a framework for “professional behaviour and responsibilities”, compliance with the code should automatically bring these qualities with it.
  • But the cynic should not be allowed to hijack too soon.
  • The code covers various areas of insurer conduct, including:
  • Policy design and disclosure;
  • Sales practices and advertising;
  • Policy changes and cancellation rights;
  • Complaints and disputes;
  • Standards for insurer third parties; and
  • Information and education.

 

Making a claim 

Any reasonable analysis of the entire code would certainly manifest in a document longer than the code’s own 32 pages and, thus, this article will only consider one of the code’s 16 Sections; which has been chosen at random…Section 8 – When you make a claim

As this is rightfully the largest section of the code; again, only some of its 30 sub-sections will be the subject of comment. Within the truncated quoting that follows, “we” should be read on this occasion as “the insurer”.

  • “8.2…we will consider all of the features of the (policy)…to ensure you are claiming for all available benefits under your (policy)…We will not discourage you from making a claim.”

The intention is noble; when a claim is made, the insurer will check the insured’s circumstances against the policy terms and alert the insured to any additional benefits that might be claimed against. 

But surely the noble intent should extend beyond the policy being claimed against such that the insurer managing an income protection insurance claim will, by appropriately bearing in mind the medical information available, proactively and tactfully suggest that a total and permanent disablement (TPD) claim might be worth making, if that cover is in place.

Further, if the commitment is not to discourage a claim from being made, why is it that some claimants become so discouraged by the assessment process that they walk away noting it as “too difficult and stressful”, and others, after a year or two of insurer claim interaction, desperately want out of a process that is providing the antithesis of the adviser’s promised “peace of mind”? 

  • “8.3 Within 10 business days…we will explain to you your cover and the claims process, including why we request certain information from you…”

Feedback from claimants and advisers would suggest that insurers giving reasons for requesting certain information is just not happening apart from, of course, “the policy allows us to do it”. 

If meaningful reasons were given, the explanation for some claim requirements would be interesting indeed; for example, why for is it that an open-ended Medicare/PBS Authority is all but a mandatory claim requirement?

  • “8.4 Prior to making a decision…we will keep you informed about the progress of your claim at least every 20 business days…”

In what way does a monthly update equate to the earlier stated “high standard”, or is the cynic being vindicated? 

Certainly, a business development manager is hardly likely to entice an adviser to support an insurer with such a less-than cutting-edge service standard.

  • “8.5 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 the above is the case, why are requests routinely made of treating doctors for a claimant’s “entire” medical file which will potentially, if not certainly, include information totally irrelevant to the claim? 

Why not instead approach the treating doctor with a request for specific information or a report requesting a response to relevant questions?

Compliance with 8.5 would, however, put pay to rumours that reinsurance arrangements exist that demand mandatory information if a claim is made on a policy of under a set duration or greater than a set benefit amount. 

And again, if an insurer deems surveillance to be “relevant” to a claim, will 8.5 require an explanation of why being provided to the claimant; if not before the surveillance, then afterwards?

The above comments should not be taken to imply a negative attitude to prudent claims’ investigations but it should be taken to imply a more open, transparent and accountable approach to those investigations. 

  • “8.6… We will only use a general authority to obtain information that we reasonably believe is relevant to your claim…”

Super, but how about general authorities containing a sunset clause of, for example, 12 months from date of signing? Examples have been seen where authorities several years old are still being touted around as valid.

  • “8.7 We… will avoid multiple information requests where possible.”

If a claimant can prove that requested information has been provided to, but apparently lost by, the insurer, will 8.7 impose a penalty on the insurer of the waiving of the right to the information? If, yes, it might give some religion to insurer’s information storage.

In 8.8 the insurer commits that, if it commissions an independent medical examination, for example, “we will ask for the report to be provided…no later than four weeks after the…date of your appointment”. The code then brings its full force to bear with “If the independent service provider fails to meet this timeframe, we will inform you of this (that is mandatory anyway as it falls within the 20 working days period above), and keep you informed of our progress in obtaining the report (no doubt every subsequent 20 working days).”

In other words, 8.8 will hardly set alight the flames of consumer confidence.

Section 8.9 details commitments in regard to income-related claims:

  • “We will not require you to get ongoing statements from your doctor more frequently than reasonably necessary to assess your condition…” 

The statement above, is the politician’s way of saying “monthly”.

  • “We will not request a medical statement from your doctor for the sole reason of processing your regular payment.”

Better tell the assessors who send out letters to the effect of “Could you please return your progress claim form so we can process your benefit payment.”

  • “We will only request financial information in circumstances where it is required to assess your eligibility to claim or to calculate your entitlement.”

But what about:

  • To ensure you have declared benefit payments to the Australian Taxation Office (ATO); and
  • To ensure you do not have any undeclared generated income.
  • “If your payment is going to be delayed, we will notify you prior to this and let you know the reasons for the delay.”

Cold comfort for the claimant that is reliant on timely payment of their 75 per cent of prior earnings in order to support their family. 

How about adding “… and if the delay is not due to any action on your part, and if you can demonstrate a financial loss arising out of the delay, we will provide full and timely compensation, together with written acknowledgement such that your credit position and reputation are not unduly affected”.

Section 8.10 brings into play the matter of independent medical examinations.

  • “You can request copies of your independent medical examination reports, which we will send to you, or your doctor where appropriate.”

And, again, how about adding:

  • We will let you know you can request a copy… etc.; and
  • We will send you, or your doctor where appropriate, a copy as and when it is received by us, together with a copy of the briefing letter.

Section 8.10 continues “If you request, you can choose from a list of doctors we nominate for your independent medical examination…”

And, dare it be suggested, how about adding:

  • We will encourage you to have a support person present with you during the examination so that you may find the process less intimidating than might otherwise be the case;
  • We will provide you with a copy of the CV of the examiner so that you will have a better idea of who it is that will be prodding and poking you and asking you to divulge all sorts of very personal information;
  • We will give you an opportunity to provide formal feedback on the examination and the examiner;
  • We will tell you why it is that, in a 30-minute appointment, including a less-than five minute physical examination, the examiner can sometimes/often assess your medical condition more to our satisfaction than your long-term treating medical providers; and  
  • If the examination results are to the detriment of your claim, we will not make a decision in regard to your claim until we have sent a copy of the report to your treating medical providers and given them the opportunity to comment.

Section 8.11 covers when an insurer requires interviews, which for the claimant can feel like interrogation, to be carried out.

  • “The interviewer will tell you who they are, that they are acting on our behalf, their reason for contacting you, and your right to have a representative or other support person present…”

The “who they are” and “acting on (insurer’s) behalf” are surely a given but what about:

  • We will give you details of the matters to be covered sufficiently ahead of the interview so you can access appropriate information and not feel as much that you are being ambushed;
  • We will give you an estimated duration for the interview so you can check with your treating medical providers that they are in agreement with your attendance;
  • We will provide you with a copy of the CV of the interviewer to include that person’s previous work history;
  • We will only tape the interview if you agree; and
  • We will provide you with a copy of the interview transcript as and when it is provided to us.

 

Surveillance

Section 8.12 covers the topic of surveillance. 

For the sake of brevity, the following are suggested additions to the somewhat lengthy list of matters appropriately covered within the code:

  • Those undertaking surveillance on our behalf will be required to have passed appropriate police background checks;
  • We will have, and make available, standards of conduct that will be issued to those undertaking surveillances on our behalf;
  • Any surveillance footage that includes children under the age of 18, will have faces of the children pixelated out prior to being provided to us. The person undertaking surveillance will be required to confirm that all copies have been similarly treated;
  • If you become aware of activity that could reasonably be construed as surveillance and you subsequently seek advice from us as to whether surveillance is being undertaken, we will clearly and unequivocally, confirm or otherwise;
  • We will have surveillance discontinued if you become aware of surveillance being undertaken;
  • If surveillance confirms the veracity of your claim, we will advise you accordingly; and
  • If you request a copy of surveillance footage and the surveillance report, we will provide you with a copy so you have the opportunity to provide additional information.

For those concerned about fraudulent claims, the writer included, an appropriate exemption when fraud is evident, should be provided. 

 

Time-based commitments

Section 8.14 deals with various time-based commitments including:

  • The insurer will make a decision within 10 business days of receipt of all information “reasonably needed”;
  • For income-related claims, a decision will be made within two months of being advised of the claim or two months after expiry of the waiting period unless “unexpected circumstances” (as defined) apply, in which case, the insurer has up to 12 months to make a decision; and
  • For lump sum claims, the insurer has up to six months to make a decision, or up to 12 months if “unexpected circumstances” apply.

Unfortunately, the definition of “unexpected circumstances”, whilst lengthy, comes down to “there have been delays in obtaining information” which pragmatically means, the claim will take as long as it takes.

Section 8.18 covers the matter of income protection insurance claim benefit commutations:

  • “… if we offer to pay you a lump sum instead of ongoing payments in order to finalise your claim, we will suggest that you seek financial and legal advice before accepting our offer.”

The crucial omission is:

  • “To ensure you are enabled to make an informed decision as to the reasonableness or otherwise of any commutation offer we make, we will advise you of the assumptions used in those areas material to the offer.”
  • “8.24 – We acknowledge that claims time is difficult for our customers, and that empathy is required in our claims management. We will treat you with compassion and respect.”

Herein lies one of the most important commitments within the claims section of the code.

The suggested additions:

  • If you ask us a reasonable question, we will answer your question in full rather than answering some of your question whilst ignoring those parts of your question that might be difficult or awkward;
  • If we advise you that a matter is being referred to another person within our organisation, we will either name that person or advise the position that person holds within the organisation. For the removal of doubt, we will not use descriptions such as:

- Senior management;

- My mentor;

- The business; and

- External stakeholders.

  • If we are communicating a timeframe for a response, we will provide a time and/or date that would reasonably appear in a calendar and/or diary. For the removal of doubt, we will not use descriptions such as:

- In due course;

- As soon as possible; and

- (Silence).

 

Some summary comments

To be fair, the code is neither “ideal” nor “idiotic”, notwithstanding it made for a kitschy article title.
 
The code is a commendable beginning without which there is no telling what may have been imposed on the industry…long-live self-regulation.
 
There is arguably, however, a long way to go in two areas:
 
(i) Implementation
 
Did anyone seriously believe that the day after the code start date, insurers would all suddenly comply? 
 
It will take time, but:
 
  • “How much time will it take before the code’s stated goals are achieved?”; and 
  • “Will the industry be given sufficient time?”
(ii) Content
 
Arguably, the wrong people wrote the code; rather than representatives of the various insurers, initially a draft might have been compiled by advisers and their clients, particularly claimants for Section 8.
 
This protocol may have resulted in a draft code that set the bar too high or so high that it was impractical but at the very least it would have sent a clear message to insurers about what issues needed to be addressed and how they needed to be addressed.
 
Even if this initial draft had been pared back by insurers to something with which they could live and work, the suggestion is made that this code would have been more likely to “…protect you, the consumer”.
 
One final point – ultimately, no code will protect the consumer; the adviser and the adviser’s licensee are charged with this and they, again like Icarus, will rise to the occasion.   
 
 
Col Fullagar is principal at Integrity Resolutions.

 

 

 




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