Insurers on notice on inflicting psychiatric injury

Life/risk insurers may have to factor in the psychological impact of their claims-handling practices on the back of comments from the man running the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Kenneth Hayne.

Hayne specifically commented on testimony given around the claims-handling practices of major insurer TAL, and a doctor’s opinion that a patient had been made worse by the manner in which the insurer had treated her.

Hayne, who is expected to delver his preliminary findings and recommendations within weeks, said it raised the question of whether the insurer could be somehow held accountable.

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He said he would have thought that to the extent to which an insurer’s actions made the medical condition of an insured worse, might give the community reason to form a view.

“But whether it’s a form of misconduct may turn, may it not, on whether the steps taken were sufficiently well based in contractual rights, powers, privileges,” Hayne said.

“My impression, subject to what TAL later have to tell me, is that there seemed to be, perhaps, some question about whether all of the steps taken in that first case would find a sufficient or sufficiently firm base in contractual powers, privileges, rights, et cetera,” he said.

Hayne said it was difficult to be precise, but he thought TAL “should be aware of the fact that there is a set of issues which I think emerges … about what would follow if there were available evidence which suggested that their conduct had caused, in this case, diagnosable and diagnosed psychiatric injury to the insured”.

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Insurers are between a rock and a hard place here. They do have an obligation to other policy holders to ensure they are paying valid claims and the sensitive position people are in at the time of claim can easily lead to the claimant feeling harassed or stressed. Even the best case manager has to deal with the psychological wall that claimants put up when their situation is questioned.

This is exactly why we explain to our clients that advisers are the best people to handle claims - we know when the insurer's requests are completely reasonable and when they are not.
Often it's the very fact that we are not the insurer and they know we fight for them that gives us the credibility to back an insurers judgment when they ask for evidence or suggest rehabilitation.

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