The Australian Securities and Investments Commission (ASIC) will embark on a major review of the direct life insurance sector after it found policies sold through that channel had higher claims denial rates compared to policies sold through advisers and group insurance policies.<\/p>\n
ASIC will also seek to remove an exemption within the financial services conduct provisions of the Corporations Law that currently means insurance claims handling are not subject to the law. The regulator will also recommend to Government that significant penalties for misconduct in this area are included in the current review of ASIC’s penalty powers.<\/p>\n
Review Findings<\/strong><\/p>\n The moves follow the completion of ASIC\u2019s life insurance claims review in which it stated that it found no evidence of cross-industry misconduct and that approximately 90% of claims were paid in the first instance.<\/p>\n In Report 498: Life insurance claims: An industry review<\/em>, ASIC stated that despite these outcomes, it still had concerns around higher claims denial rates and claims handling procedures associated with certain types of policies, particularly that rates of declined claims were highest for TPD cover, with an average declined claim rate of 16%, and trauma cover with an average declined claim rate of 14%.<\/p>\n The regulator also found variation in declined claims among insurers, with TPD\u00a0denial rates being as high as 37% and trauma (up to 25%) for some types of cover.<\/p>\n ASIC also stated there were higher claims denial rates in relation to insurance policies sold directly to consumers without financial advice and that declined claim rates for direct insurance were at 12% while those for retail insurance were 7% and group life was at 8%.<\/p>\n Claims handling and denials also made up 72% of all life insurance disputes, according to ASIC which stated that most disputes related to the evidence the policyholder was required to provide to the insurer to assess their claim or the timeframes taken by an insurer to assess a claim.<\/p>\n Data Issues<\/strong><\/p>\n In the report, ASIC said while it had gathered claims data from across the sector there was a need for better quality, more consistent and more transparent data about insurance claims.<\/p>\n \u201cAs far as we are aware, this is the first time this type of data has been collected. Many insurers found it challenging to provide the data requested\u00a0by us in the review. Life insurers will have to continue to invest in their systems to be able to provide robust and granular data. This data will then be\u00a0more useful in identifying trends and issues within a product, an insurer or the industry as a whole,\u201d ASIC stated.<\/p>\n ASIC Action<\/strong><\/p>\n ASIC also called for the life insurance to make a number of key recommendation including;<\/p>\n ASIC will also work with the Australian Prudential and Regulatory Authority (APRA) to establish a new public reporting requirement for life insurance industry claims data and claims outcomes.<\/p>\n The two regulators will also work with insurers and other stakeholders during 2017 to establish a consistent public reporting regime for claims data and claims outcomes, including claims handling timeframes and dispute levels across all policy types<\/p>\n ASIC will also recommend to Government the strengthening of the legal framework covering claims handling and the consumer dispute resolution framework for claims handling should be strengthened.<\/p>\n APRA Action<\/strong><\/p>\n Separately, APRA has written to life insurers and superannuation trustees outlining its expectations for improvements to the oversight and handling of insurance claims following its own request for data in this area.<\/p>\n APRA stated this will include;<\/p>\n Ministerial Response<\/strong><\/p>\n The Minister for Revenue and Financial Services, Kelly O\u2019Dwyer<\/strong> said the Turnbull Government welcomed the release of the ASIC review and has asked Treasury to proceed with the recommendation to remove the exemption for \u2018insurance claims handling\u2019 from the definition of a \u2018financial service\u2019 in the Corporations Act. Treasury has also been asked to undertake a targeted consultation on the merits of removing the exemption.<\/p>\n The Minister also said the introduction of penalties for misconduct in relation to claims practices would be considered as part of the pending review of ASIC\u2019s enforcement powers.<\/p>\n The review by ASIC covered 15 insurers covering more than 90% of the market and examined three years of data from 1 January 2013 to 31 December 2015 in the areas of term life cover, total and permanent disablement (TPD), trauma, and income protection.<\/p>\n The ASIC Report can be accessed here<\/a>.<\/strong><\/p>\n“…this is the first time this type of data has been collected. Many insurers found it challenging to provide the data…”<\/h6>\n
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