March 6, 2018
Life insurance has continued to rank low with the Financial Ombudsman Service, which has told the Banking Royal Commission that only around five per cent of systemic issues identified by the service related to life insurance.
In its submission to the Commission, FOS stated that of the 463 issues identified and resolved by product line over the past decade, life insurance accounted for only 20 cases, or 4.3 per cent of issues, well behind credit related issues (238), general insurance (86) and investments and advice (49).
…life insurance disputes made up only 3.7 per cent of all disputes received…
Of the 395 issues identified and resolved by member category over the past decade, life insurers only accounted for 21 cases, or 5.3 per cent of issues, compared with banks (214), general insurers (71), credit providers (66) and financial advisers (23).
These low numbers were also reflected in the low level of disputes related to life insurance received by FOS over the decade since 2007.
The service stated that, on average, over the last ten years, life insurance disputes made up only 3.7 per cent of all disputes received and the level of disputes received year on year had fallen since 2014 to its lowest point in 2017 of 3 per cent.
FOS stated the most common systemic issues with life insurers were:
- Inadequate claims handling processes
- The cancellation of policies
- Policy interpretations
- Processing errors
It also noted that the most common disputes were the result of actions taken by life insurers and relate to claims involving income stream products.
“It is our experience that life insurance disputes generally arise as a result of the application and interpretation of policy definitions where the definition is overly restrictive, ambiguous or outdated,” FOS stated.
“Financial advisers were involved in more than half of all of these unpaid determinations…”
“We have found that certain definitions have not kept pace with current clinical, medical or diagnostic tools. Typically these matters also involve instances where community expectations about what a policy covers differ from the highly technical definitions in policies and narrow interpretation applied by the insurer in assessing the claim,” FOS added.
The Ombudsman was, however, less complimentary on the level of unpaid determinations owed by financial advisers.
It stated that “…while the issue involves only a minority of our members who provide financial advice, the level of unpaid determinations at the end of December 2017 was almost one-quarter of all determinations made in our investments and advice jurisdiction”.
“Financial advisers/planners were involved in more than half (55%) of all of these unpaid determinations, followed by operators of managed investments schemes (13%) and credit providers (10%),” the submission stated.