What does ASIC’s life insurance review mean?

Life insurance is supposed to give you peace of mind that if you die your loved ones will be protected, but recently insurers have been publicly criticised for employing outdated definitions in order to avoid paying life insurance claims, using in-house advisors to favour their own insurance policies, and linking the pay of staff to claims outcomes.

In October 2016 the Australian Securities and Investments Commission (ASIC) handed down its report into the handling of claims by the life insurance industry. The regulator found “significant shortcomings” in the way insurers handled claims, and as a result made a number of recommendations which are aimed at improving the claims process for Australians with life insurance.

As part of the review ASIC examined three years of data from 15 different insurers, which account for 90% of the life insurance market, focusing on the the four main life insurance policies: death cover, total and permanent disability cover (TPD), trauma insurance, and income protection insurance.   

What did ASIC find?

  • That 90% of life insurance claims were paid the first time around, and that they made up roughly $8 billion in policy payments from June 2015-June 2016.
  • TPD insurance claims were the most commonly rejected of the four categories, with an average decline rate of 16% across the 15 insurers.
  • Trauma claims were the second most commonly rejected, with a decline rate of 14%.
  • ASIC noted a “considerable variation” in declined claims between insurers, with TPD claims rejected 37% of the time by one insurer, and trauma claims rejected 25% of the time by one insurer.

What has ASIC recommended?

  • A new public reporting system for claims. ASIC noted that there was a general lack of public trust in the life insurance industry, so to improve this and to make the claims process more transparent they will work with APRA (the Australian Prudential Regulation Authority) and the individual insurers to make claims data more accessible - especially to consumers so they can compare data.
  • Encourage the government to strengthen the legal framework. The handling of life insurance claims are currently exempted from the Corporations Law, so ASIC is recommending that the government not only remove this exemption, but allow them [ASIC] greater powers to penalise misconduct by insurers.
  • Strengthen the consumer resolution process. ASIC wants to ensure that issues of fairness are more often taken into account during the claims process between insurers and consumers.
  • Follow up reviews for problem areas. ASIC intends to continue to review areas which were identified in the report as being particularly concerning. These include looking at insurers with high decline and dispute rates and investigating the process and high rejection rate for TPD claims.
  • Strengthen industry standards and code of practice. ASIC will review the appropriateness of definitions used by insurers, which have come under fire for being deliberately out of date and used to deny claims. They will also ensure that there are no conflicts of interest between staff ‘performance measurements’ and potential to fairly assess claims.

What can you do if your claim has been rejected?

  • Ask for your claim to be reviewed. Life insurers are required to have an internal dispute resolution system through which your case can be looked at again, so before you do anything make sure you get your claim reviewed.
  • Contact the financial ombudsman. If you’re still dissatisfied with the results of the internal review by your insurer you can lodge a dispute with the financial ombudsman and potentially take legal action against the insurer.
  • Lodge a complaint with ASIC. If you believe that your life insurers conduct wasn’t up to scratch or they failed somehow in the delivery of your life insurance then you can lodge a complaint with ASIC.

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