ASIC uncovers ‘significant shortcomings’ in life insurance industry

The corporate watchdog has noted “significant shortcomings” in the way the life insurance industry deals with claims.

ASIC chairman Greg Medcraft. (LUIS ENRIQUE ASCUI/THE AUSTRALIAN)

The corporate watchdog has found “significant shortcomings” in the way life insurers deal with claims, especially those for total and permanent disability, following a review of the scandal-ridden industry.

One insurer refused 37 per cent of TPD claims, the Australian Securities and Investments Commission said in a report released today.

Separately, the regulator said that a wide-ranging and complex investigation into key life insurance player Comminsure, an arm of the CBA, was “anticipated to continue for some time”.

The investigation was sparked by media reports that Comminsure was wrongly denying claims, often using outdated medical definitions.

“The investigation remains a priority for ASIC and we will provide public updates where appropriate as the matter progresses,” ASIC said.

Last week, CBA chief executive Ian Narev defended Comminsure, saying the bank had hired outside experts to review the division.

“I would say that, although — again, focusing on the customers — the goal is to put things right, the evidence that the independent reviews have surfaced is significantly at odds with many respects of how the issue has been characterised,” Mr Narev told a parliamentary inquiry into the big four banks.

In its wider report on the sector, ASIC said it did not find “evidence of cross-industry misconduct across the life insurance sector in relation to life insurance claims payments and procedures”.

However, it said there were “issues of concern” relating to claims handling and called on insurers to give greater consideration to “fairness”.

“Although the considerable majority of claims are paid, we are concerned that in some cases, claims are being declined on technical or contractual grounds that are not in accordance with the ‘spirit’ or ‘intent’ of the policy,” ASIC said in the report.

ASIC said it was concerned that the average rejection rate for total and permanent disability (TPD) claims was 16 per cent, compared to an average for all claims of about 9 per cent.

“For TPD cover in particular, there was a wide variation between insurers with declined claim rates of between 37 per cent and 7 per cent,” ASIC said

“This significant variation suggests that for those insurers with markedly higher rates of declined claims for particular products, further work needs to be done to review whether some claims are not being paid in some circumstances where they should be.”

ASIC said it would ask the government to end life insurance’s exemption from laws protecting consumers of financial services products and, in conjunction with prudential regulator APRA, improve disclosure by insurance companies of how claims are handled.

Dispute handling procedures are also to be beefed up, ASIC said.