ASIC cites ‘significant shortcomings’ in Australian life insurance review
The Australian Securities and Investments Commission (ASIC) has announced the findings of its industry-wide life insurance review, saying there are “significant shortcomings” in a number of areas in claims handling.
In an announcement today, ASIC said it has found “a clear need for public reporting on life insurance claims outcomes at an industry and individual insurer level”.
While the review did not find evidence of cross-industry misconduct, it did identify issues of concern in relation to higher claims denial rates and claims handling procedures.
Among issues highlighted, there were higher claims denial rates in relation to insurance policies sold direct to consumers with no financial advice, compared to policies sold through advisers and group insurance policies, ASIC said.
ASIC announced in March that it would conduct a wide investigation into claims handling following the CommInsure scandal. The review found that, while life insurers are paying the considerable majority of claims, there are significant shortcomings in a number of areas of life insurance claims handling, and there is a clear need for public reporting on life insurance claims outcomes – at an industry and individual insurer level.
“Life insurance is a vitally important financial product that helps support consumers and their families at times of significant stress,” said ASIC chairman Peter Kell. “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,.”
ASIC’s review examined 15 insurers covering more than 90 per cent of the market. The six-month review analysed three years’ of data on the four major life insurance policy types – term life cover, total and permanent disablement (TPD), trauma, and income protection.
APRA call for improvements
The Australian Prudential Regulation Authority (APRA) has also today sent letters to life insurers and superannuation trustees setting out its expectations for improvements to the oversight and handling of insurance claims,
Based on information submitted by insurers and trustees, APRA said in a statement earlier today, that it 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.
The review highlighted that rates of declined claims were highest for total and permanent disability cover (average declined claim rate of 16 per cent) and trauma cover (average declined claim rate of 14 per cent).
There was also a substantial difference in declined claims among insurers, with TPD denial rates being as high as 37 per cent and trauma up to 25 per cent for some types of cover.
The most common types of life insurance disputes were about the evidence insurers require when assessing claims (including surveillance), and delays in claims handling, the review found.
In an effort to improve claims handling standards, ASIC has established with APRA a new public reporting requirement for life insurance industry claims data and claims outcomes.
“To improve public trust, there is a clear need for better quality, more transparent and more consistent data on life insurance claims,” ASIC added.