Insurers Put on Notice Over Life Insurance Claims Handling

ASIC is putting insurers on notice that it will take action where it sees consumer harm from poor claims handling practices.

The commission’s review of nearly 4,800 individual disability income insurance claims, received between 1 January and 30 June 2021, has found more work is needed by insurers to ensure that consumers are protected from unfair practices in non-disclosure investigations and physical surveillances.

ASIC Deputy Chair Karen Chester noted that the commission had also identified concerns around mental health claims and investigations.

“Non-disclosure investigations and physical surveillance are intrusive measures and insurers must ensure they have reasonable grounds to undertake them. We expect physical surveillances to be used as a last resort only,” she says.

A statement from the regulator says that as a  result of its review, some life insurers have made improvements to their practices.

“ASIC’s inquiries are continuing with those life insurers that had a higher proportion of potentially unwarranted investigations identified in the review.”

It has “… longstanding concerns about the potential consumer harm resulting from over-use of intrusive claims handling practices like non-disclosure investigations and physical surveillances.”

The latest review of IDII claims follows ASIC’s 2019 and 2021 reports which examined claims handling practices in the context of TPD insurance.

Chester says ASIC’s  previous reviews and the Royal Commission identified concerns around the misuse of investigative tools by insurers and resulting consumer harms.

“Following the Royal Commission, we took action against TAL for breaches of its duty of utmost good faith in handling claims. Changes to the Corporations Act on 1 January 2022 mean that insurers are now legally obliged to act efficiently, honestly and fairly when handling claims.”

She says ASIC’s latest review sought to test whether insurers “…were now entrenching good practices, especially with insurers now being subject to new claims handling obligations. We also sought to identify any outliers and areas for improvement.

…Following the review, we remain concerned that some insurers still appear to be ‘fishing’ for non-disclosures…

Following the review, we remain concerned that some insurers still appear to be ‘fishing’ for non-disclosures to avoid paying out legitimate claims.”

Review findings

ASIC’s review of nearly 4,800 IDII claims found that:

• Non-disclosure investigations were conducted in around 5% of claims (252 claims) and physical surveillance was conducted in around 1% of claims (57 claims)
• Five insurers appeared to commence non-disclosure investigations only on the basis that the claim was lodged within three years of policy inception or renewal, heightening the risk of ‘fishing’
• 40% of non-disclosure investigations related to mental health non-disclosure
• Physical surveillance was used in 10 mental health claims and ASIC considers that surveillance may have been unwarranted in half of these cases
• Use of surveillance may have been unwarranted in 17.5% of claims (10 of 57) where surveillance was used, because the insurer had not shown that other investigative methods had been exhausted

ASIC has written to the life insurers covered by the review to outline areas for improvement and communicate expectations for their use of investigative tools, including the obligation to handle claims efficiently, honestly and fairly.

Life insurers which participated in the review were:

• AIA Australia Limited comprising AIAA and The Colonial Mutual Life Assurance Society Limited
• TAL Life Limited comprising TAL and Asteron Life & Superannuation Limited
• Zurich Australia Limited comprising Zurich and OnePath Life Limited
• MLC Limited
• Resolution Life Australasia Limited (formerly AMP Life Limited)
• Westpac Life Insurance Services Limited (now TAL Life Insurance Services Limited as of 1 August 2022)