Common definitions to be imposed on insurers

The life insurance industry is to get common definitions following work by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) concluded that it was almost impossible to make meaningful comparisons under current arrangements.

The announcement came as the two financial services regulators released the initial industry-aggregate results from a pilot data collection project on life insurance claims which confirmed that more than 90 per cent of life insurance claims are paid in the first instance.

However, it is the decision on definitions which will have most meaning for the industry, particularly in circumstances where one of the most strident criticisms of the development of the Life Insurance Framework (LIF) was the difficulty in identifying what was or was not a “lapse”

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The ASIC and APRA analysis released this week said that, at present, meaningful comparisons were difficult to make because insurers had a wide range of differing systems, products and processes.

“These differences have led to a variety of data definitions, making data interpretation difficult. For example, where two insurers have different definitions for what constitutes a reported, declined or withdrawn claim, the data they reported on these items is not comparable between them,” it said.

Commenting on the findings, APRA member and former insurance industry executive, Geoff Summerhayes said the joint APRA and ASIC project represents the first time that common definitions are being formalised across the industry.

‘We are now focusing on the ability of insurers to report according to these common definitions, including how they can do their best to manage system constraints,” he said.

“While significant progress has been made, there is still more work to be done to fully embed the definitions across the industry,’ Summerhayes said.

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I've been saying this for years - how can you enforce best interests when it is so subjective in choosing an insurance product. Even insurance lawyers couldn't wade through the PDS and all the legal definitions and differences, let alone a humble financial adviser - not to mention the medical training required.

I think standard definitions will be good but this is another example of ASIC and the insurers creating a problem that did not exist in the first place.
The fact that such a high proportion of claims are paid is testament that the industry was actually doing a pretty good job before ASIC went after it with incompetent (or better still corrupt) reporting.
With the con job done by the FSC through the LIF and standard definitions the following is going to happen:
1. The FSC members are increasing existing policy holders premiums as a profit grab and reducing premiums just for new business THEREBY ENCOURAGING CHURN.
2. Standard definitions mean insurers will only be competing on price but will only compete on this for new business THEREBY ENCOURAGING CHURN.
3. I supect the 8% of claims denied are likely to be in the direct space and due to ASIC and the FSC more business will be written directly in the future and MORE CLAIMS WILL BE DENIED.
You could not write the comedy of errors and corruption that is ASIC and the FSC.

Hi Phil and JB - I must be reading this article differently to you both.....I read it to say that they are looking at standard definitions for what constitutes a lapse, not that they are looking at standard definitions for trauma conditions, TPD etc. Aren't they saying that they can't make meaningful comparisons because all of the insurers report lapses differently. Standard policy definitions would be anti-competitive.

Hi Brett, I'm with you 100% - this is an ASIC reporting standardisation not a medical definition standardisation. That would effectively be anti-competitive and hamper product development.

Shame though - it would be great if the insurance companies had to compete largely on price only rather than some obscure depth of skin cancer on the arm definition.

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