Will your claim be paid?

Are you confident your life or TPD insurance will pay out should something happen to you? Well, the statistics may suggest otherwise.

Following an industry review by the Australian Securities and Investment Commission (ASIC), commissioned by Financial Services Minister Kelly O’Dwyer, it was found that one insurer denied 37 per cent of total and permanent disability (TPD) claims, while two more denied 25 and 24 per cent. But which insurers? We may never know. ASIC has issued a warning that the industry needs to clean up its act or it will start naming names.

Peter Kell, ASIC Deputy Chairman said, “Life insurance is a vitally important financial product that helps support consumers and their families at times of significant stress. Not being able to successfully claim on a life insurance policy can be financially devastating for the consumer and/or their family, so it’s important that the industry operates in a way that is fair and transparent.”

The review, the purpose of which was to determine if there were systematic problems with either the industry as a whole or a particular insurer, focussed on life insurance claims. It looked at the outcome of claims and disputes, as well as insurers’ processes, documentation, staffing, systems and procedures and selling tactics.

When it comes to life insurance, for the period between 2013 and 2015, only four per cent of claims were declined. It fares well when compared to claims declined for other types of insurance – income protection seven per cent, trauma 14 per cent and TPD 16 per cent.

So, what causes a dispute on a claim? Evidence and delay accounts for 47 per cent of disputes and ASIC will be taking a further look at these disputes. In future, insurance companies will also have to report the percentage of claims they deny.

There are 15 insurers that represent 90 per cent of the market when it comes to premiums collected and ASIC has put them all on notice, with more than 15 independent reviews being initiated by life insurers. ASIC will also review whether or not polices have been mis-sold by insurers issuing policies to people and companies that they knew would never be able to claim. Mr Kell said, “We identified issues of concern in relation to higher claims denial rates and claims handling procedures associated with particular types of policies,” he added. 

The review also found that there were conflicts of interest in the way in which remuneration packages for claims staff had been set up, with one insurer looking at the decline rate of claims staff as an indicator of bonus payments.

The Government has also sought to cap commissions paid to planners at 60 per cent of upfront premiums paid by customers.

Industry Super Australia chief executive David Whiteley was concerned about the financial remuneration to planners and claims staff, “Quite frankly it’s bordering on immoral,” Mr Whitely told Fairfax.

ASIC has also recommended that tougher penalties be imposed on insurers who breach their duty to act in ‘utmost good faith’ when customers make claims on policies.

The Australian Prudential Regulation Authority (APRA) has also weighed in by sending letters to life insurers and superannuation trustees stating what it expects in regards to improvements to the oversight and handling of insurance claims. A release by APRA on Wednesday stated, “Based on information submitted by insurers and trustees, APRA has identified a number of areas where both trustees and life insurers can improve their practices to better meet expectations in relation to insurance claims.”

ASIC will today front the House of Representatives economics committee to answer questions about its performance in general. It will also respond to issues raised during last week’s banking inquiry. Labor MP Matt Thistlethwaite will be in attendance and intends to use the committee meeting to request ASIC name the insurers and their decline rate.

“We think it’s incumbent on the regulator in this area to provide as much information as possible for consumers,” he said. 

“This report provides no information at all for consumers about which insurers are performing well and which have rigorous internal processes to ensure they have best outcomes for customers.”

ASIC has refused to release the names of the insurers as it claims its data was “not entirely reliable” 

All three financial regulators, ASIC, Australian Competition and Consumer Commission (ACCC) and APRA, will be in front of the economic committee today as a following on from the big four banks appearance before the parliamentary committee last week.

Do you have concerns about your life or TPD insurance? Have you ever had a claim denied or delayed? Does the review go far enough?

Read more at TheAge.com.au

Related articles:
ASIC’s life insurance warning
Choosing the right insurance advisor

Written by Debbie McTaggart

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