Warning to ASIC on Danger of Releasing Insurer Claims Decline Rates

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The risk store’s Sue Laing has penned an open letter to ASIC in which she warns the regulator of what she believes to be serious consequences that would stem from publishing individual life company claims denial rates.

risk store Founder, Sue Laing... opposes any move to publish individual insurer claim decline rates
risk store Founder, Sue Laing… opposes any move to publish individual insurer claims decline rates

Under the heading of ‘Be Careful What You Wish For’, Laing tells the regulator the risk store is “…extremely concerned regarding the serious potential for irreversible damage to the sustainability of the industry…” if it proceeds with publishing individual claims decline rates.

The underlying reason for Laing’s concern is that a ‘leader-board’ of decline rates will create competition between insurers to avoid rejecting claims in order to achieve a higher placing. She believes this is a dangerous precedent that would lead to an unsustainable pricing structure that could only be addressed by price hikes. Laing writes:

Sustainability will be the victim…

“In other words, pressure from consumers on one side [to be presented with the ‘best’ decline rates to choose from] plus pressure from claims outgoings [to have the ‘best’ decline rates by paying out more than should be paid] from the other side can only mean one thing … premiums will have to rise. Sustainability will be the victim, and this will snowball into an affordability backlash from advisers and consumers alike.”

ASIC’s reasoning in proposing that individual claims denial rates should be released is that it would help inform consumers when making their choice as to which insurer they should seek when taking out life insurance policies (see: Direct Insurance to be Reviewed as ASIC Finds Claims Issues). However, Laing argues the public release of this information would inflict much more harm on the industry and the consumer than the intended positive benefits associated with such a move.

Laing asks how the regulator will determine the point at which decline rates for claims should be judged as unacceptable and notes that raw decline rates can be misleading, which is why she believes they won’t contribute to consumers being well-informed.

She also questions whether the industry even has the capacity to report consistent claims information, saying claims data reported by insurers is “…ridiculously inconsistent.” Laing adds, “Even claims causes, which most of the life insurance world globally reports based on an international code but our industry doesn’t, are impossible to properly collate. The risk store has experienced that first hand for 10 years as we have struggled to gather and publish annual industry claims paid and causes statistics to the best quality we can muster from what we are given.”

…do we have benchmarking of the actual claimant experience?

While she is highly critical of any move to publish individual claims denial rates, Laing offers an alternative that she says will serve as a better tool for consumers. This alternative, says Laing, relates to the development of a life insurance claims experience measure for those individuals who have undergone the claims process: “… an admitted claim can give a claimant a lousy experience and at the other end of the spectrum, a declined claim can be handled very sensitively. So do we have benchmarking of the actual claimant experience? No.”

Advisers can click here to access the full version of Sue Laing’s open letter to ASIC.



16 COMMENTS

  1. Sue has excellent points in her open letter. The first issue to handle, though, may be to have an industry wide definition of what a declined claim is or to divide them into a few categories. A key metric would be Financial Ombudsman Service (FOS) claims decided in favour of the claimant and a lesser metric FOS claims settled for 30% or 50% or more of the amount claimed.

    If the declined claims are published, they should be published with what is called in statistics a confidence interval. 3 out of 10 denied claims could mean that the true decline rate is between 7% and 63%, while for 30 out of a 100 the true rate would be 21% to 40% (Stata cii for the statistician), otherwise those with small numbers of claims could be quite misleading.

    Once the data is clear, it could then be decided what is in the interest of all to be published. The fact that some insurer currently paid claims assessors extra for rejecting claims does not seem to be in the interest of all.

    • Any reasonable person would agree that if you have nothing to hide, then why not be completely open and transparent. I think it is important for insurers to be open and transparent on ALL metrics impacting their stakeholders (customers, shareholders, advisers and the like). We need to go back to the intent of ASIC reporting claims denial data. That is, to expose poor behaviours and to protect Life Insurer stakeholders.
      In the case of the TPD review, it was found that the data inconsistencies were so broad that Life Companies who thought they were doing the right thing by full disclosure, were actually exposed and treated in some media publications as unethical due to high decline rates when, in fact, data included denials for customers that didn’t even hold insurance policies with the insurer.
      In short, if the data is published there needs to be very strict guidance on what is included in the data, perhaps even taking a customer view rather than a “policy type” view to eliminate issues such as customers on IP claim that would not be eligible for TPD in the first place. Until they land on appropriate definitions, the data should not be published.

  2. Interesting should they not be accountable? Insurance companies are good when they are good and very evil when they want to be for Example, ZAL in an income claim with financial evidence provided at the time of application in 2005 (Did not endorse in 2005 but encouraged if financial evidence is provided at the time no evidence is required at claim time) are now saying financial evidence is required to support a claim. Ok Comminsure category H income insurance Benefit period to age 65 oh no it is not read the fine print. So declines its like FOS not reporting who the insurer is when publishing a finding. let the members of the FSC be held accountable remember the reason for LIF is the FSC and it members.

  3. Just a couple of points to ponder. Say ASIC releases the statistics per insurer, and insurer XYZ(whoever) has a pretty poor rate of successful claims, say only 60% of claims get paid out. How many insured persons out there; who are insured by XYZ, will doubt their choice of insurer, and request their Financial Planner that they wish to be insured with a different insurer. What will happen under the new commission rules that is to come into play? Businesses can be ruined by the new claw back rules.

    It can also lead to a lot of replacement policies, questions then can be raised whether it constitutes churning.?

    Insurers should be held accountable, but decisions to disclose per insurer may have other consequences that were not intended. What if a mass of clients say; we told you so, insurance providers are just looking for reasons not to pay. Why should I have insurance then at all?, and an en mass cancellation wave happens.

    Australia’s under-insurance problem may become worse.

    Another very important statement I want to make. Personal Risk Insurance has never been bought; but always been sold, and will always need to be sold. Clients do not wake up one morning and recon they need another $500,000 Life and TPD cover, or some Trauma Insurance. Most of the time they need Trauma to be explained to them a couple of times. Not because they are slow to understand; but because it is not something they work with every day.

    The new LIF regulations will ruin many Risk Insurance businesses. Why are politicians more concerned about the income some Risk advisers may generate?, than the value risk advisers add in ensuring more Australians are insured. They first have to sort it out in their minds whether they recon Personal Risk Insurance is a bad or a good thing?

    If they agree that; yes risk insurance is a necessity, well then do not put road blocks in our way.

    You would recon that over-insurance is an issue; and not under-insurance (the real state of affairs) the way they go about it.

    Every risk application that I assist my clients to fill in; there is a question. Does the applicant have existing insurance, and is this going to be replaced? Well there is the easy way to find your churners.

    I do sometimes replace insurance, when it is to the client’s best interest and benefit, and the reasons will be clear in the SoA so that the client can make an informed decision.

    I can rant on the whole day… the people who should listen have made up their minds and will maybe listen, but not hear.

  4. An excellent analysis of the consequences of this type of disclosure and I agree on her points entirely however, if these decline rates must be released I believe its important that there is a numerical delineation between decline rates of Direct insurance versus Adviser issued insurance!
    I believe the real issue, if any, lies there and will alert the public that it is entirely in their best interest to seek advice for appropriate, cost and tax effective cover from an adviser that does this everyday as opposed to once for a client who is potentially endangering themselves with DIY cover .. That’s it

  5. Its about time ASIC got off it’s **** and looked into the issues of decline rates and lapse rates properly. They need to set up a 2 year enquiry from now, and demand much deeper information about both. Decline rates in themselves do NOT tell a fair story as you need more data behind the decline. An insurer should not be “punished” for rightfully declining a claim. On the same note, using lapse rates to justify the LIF scenario’s is also rubbish. There are many good reasons why a policy will lapse and the vast majority of them have nothing to do with so called “churn” yet ASIC and others use this data to claim Advisers are providing poor advice and / or poor service.
    If they were fair dinkum about trying to improve the industry then they would set up a proper system of enquiry and would seek and use relevant, proven, data and statistics rather than use these murky numbers because they better fit their real agenda !!

  6. There are some excellent comments here. If any stats publication is to occur, then we certainly agree that the direct and retail (and group) stats be separate. ASIC’s report already has this differentiation evident so we would hope they would continue with this.
    We imagine the time will come when accurate and meaningful stats may be useful to publish beyond the use that the regulators have for them (and they are justified to want to know these as regulators). That time is a long way off, as the insurers need some very robust work done on their reporting, complemented by some serious consumer engagement/education, before declines info could be safely released and understood. The mainstream media, however, are still likely to trash the truth for their own sensational purposes. So we must be very vigilant as an industry about not throwing the baby out with the bathwater.

  7. Sue, the problem is that some insurance companies lack the kind of morality expected by human beings in general.
    They should be named and shamed.
    I know of one life company (A) who decided after getting an adverse prognosis concerning a legitimate IP claim was going to pose a problem for them long term for one of their clients with a deteriorating back condition. The first thing they did was fail to send a claim form when first notified, It was only after 4 weeks that the client rang the adviser to find out why. Then Company A made the client jump through a number of hoops without consulting the adviser at any stage and unfortunately the client didn’t say anything either. Finally it was found that the client was held to ransom for 6 months before they agreed to meet a legitimate claim provided the client cancelled his non cancellable policy.
    The said company “A” found out almost 8 years prior to taking out a policy that the client had forgotten that he’d taken a week off work following a neck injury playing soccer. He had never had a problem after that but company “A” tried to hit him with non disclosure.
    At no time was the adviser consulted.
    The client also hurt himself about 3 years after he took out the IP policy but did not claim on it. Company “A” threatened to hit him with a second non disclosure for that as well, even though he’d never submitted a claim.
    Why do you think unethical companies like that should be protected ? It’s a disgrace.

    CBA has been in the news for all the wrong reasons.
    Here’s the thing, their trauma policy says they will pay if “you suffer from the complete and irrecoverable loss of hearing in both ears”.
    I would argue that total means 100.0% and even though “complete” legally is implied to mean the same thing, my question is … ” how deaf do you have to be to qualify”.
    In this case a consulting Workers Compensation audiologist pronounced a client with a loss of hearing in one ear @56.0% and @ 58.0% in the other, and normal hearing aids would not help him.
    Even with an experimental Cochlear ear implant it was impossible for the client to discern a conversation between two people in the same room unless he read lips.

    Here’s the problem, how deaf do you have to be to get paid. I would suggest that even if you lost 96.0% hearing in 1 ear and 98.0% in the other you would find it difficult to claim. Why because the degree of deafness is not quantified and why you think companies who find a way to squirm out of meeting their legal and moral obligations is something I don’t get.
    I’d name and shame them at every opportunity and not wait for a Current Affair or 60 minutes or 4 Corners to shine the spotlight on them like “cockroaches”

    • Hi Alleycat,
      Perhaps you might read the letter in full. Anyone who knows us and/or reads this letter would recognise that we have never let insurers off the hook for unethical practices. But we don’t see the naming and shaming for individual poor claims stories – of which there are plenty – will achieve anything. In fact your post precisely proves how critical it is to properly identify these stories as either systemic or one-offs. You could be describing the only ‘poor’ claims these insurers have handled all year, or they could be the tip of an iceberg – but we must know this, not guess at it.
      Our point is that systemic issues – what you have called a lack of ethics and morals – can only be uncovered via the type of processes that ASIC is proposing and imposing: reporting (done properly), reviews by experts, transparency of claims management. This will occur from now on (498 makes this very clear) and it is up to those of us with more industry experience than ASIC to assist them with their learnings from the review program. This particular open letter was penned for one purpose: in the hope that it would help get them on the right track with decline rates publishing. Neither naming and shaming nor raw decline rates will benefit the industry at all. Putting insurers under formal and structured scrutiny will. That is what is evolving and we are completely in favour of this.

    • Alleycat, why single out Comminsure for its Loss of Hearing definition, when every other retail provider uses the same or equivalent words to “complete and irrecoverable’? You also omitted to mention that the Comminusre definition can still be satisfied even if the person undergoes cochlear transplant; something not all of their competitors do.

  8. On Monday we announced that the claimant experience is being measured, benchmarked and tracked by the Beddoes Institute’s Life Insurance Industry Performance Barometer. This program benchmarks the experience of claimants across most Life Companies and in the last six months has measured the experience from 800 claimants.

    It’s been widely reported that in 2015 the Beddoes Institute engaged consumers, life companies and advisers in a consensus project to define the needs and expectations of claimants. Having identified these, the Institute piloted the first claimant experience study in April 2016.

    Only one week ago the second industry benchmarking claimant experience study was completed. The results of this study will underpin the Consumer Choice Awards, including the Claimant Choice Awards, to be announced on November 15th in partnership with the AFA.

    Read more here: https://riskinfo.com.au/news/2016/10/24/new-life-industry-consumer-choice-awards-announced/

    • Hi Rebecca and thanks for your input. Yes we understand what your research achieves and it does a great job of supporting the industry and rewarding great behaviours that satisfied consumers found commendable.

      The claimant experience we are referring to is the type of experience that ASIC is concerned about (after all the open letter is about declines) and is found by trawling through actual claim files in the style of an ‘audit’, rather than research. The benchmarking would be achieved by confirming no systemic issues, or the existence of systemic issues, such as can be uncovered by random file selection and an ‘open file’ policy by insurers. We have achieved this with several insurers via C-MAP.

      Both methodologies are relevant. The on-site audit style will better uncover the problem areas so is less popular!

  9. Dear Sue,
    I’m not so sure that I entirely agree with you..
    I think when companies look for ways to not pay claims, even on an individual case by case basis, you can be pretty sure there’s a systemic culture in place.
    One wonders how long it might have been before Comminsure’s systemic culture of refusing legitimate claims would have surfaced before the the spotlight was put on them by the ABC and in particular by their former CMO.
    If you are depending on some rinky dink audit process, here’s the problem with that and that of ASIC.
    You know that the so called “churning” issue has been used as a sledge hammer, to nail every risk adviser under the LIF legislation.
    Does anyone know how “churning ” is defined ?
    Yes, they’ve introduced a “client best interest test” which you would expect should have been the basis for any change
    .So what is the “client best interest ” test ?
    How do we apply it when a client who is accepts Group Life rates is told that 2 months after taking out their cover via their superannuation that the Group Life company is going to increase their rates by 85.0%.
    Is the client best interest test to leave the client where they are and lose the client altogether or do I as an adviser look for a viable alternative ?
    If the client’s circumstances change, e.g. divorce, unemployment, change of employment, etc because there’s a myriad of reasons why clients discontinue their insurance that the adviser has no control over, but the government with the FSC ‘s prompting want to nail the risk adviser like a jack hammer.
    The only thing left is to have a claims process that doesn’t sweep under the carpet or white wash any life insurer’s lack of morality or ethics.
    I’m sorry but I don’t believe that the bureaucrats are capable of adopting a policy that is going to be simple and fair to the consumer or the adviser.
    You cannot get any more glaring examples of this than the way FOS is set up or the LIF changes now being enacted.

    • Our letter is not about LIF. That is about advisers. This is about consumers. Different soapbox.
      The past had no claims scrutiny; the future now will have. We must contribute so as to help them get it right.
      Finally – our last response: a bad claim is not automatically a sign of a systemic issue. That is simplistic and unsupportable.
      Thanks for engaging Alleycat.

  10. I would like to see claim decline rates published by company but I would like to see this broken down by purchase route e.g. Group, individual direct and individual via advised.
    ASIC and the press have already distinguished that policies sold directly or via super have seen a much higher decline rate than advised policies but do the public actually understand that (simple answer is no they don’t)
    Whilst the insurers and banks would be horrified to have to justify themselves publicly this would give clients a clear understanding that getting advice is the best option.
    Of course the FSC would fight this.

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