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.
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.