Life insurers warned on claims handling

Regulators have told nine life insurers they have more to do to meet claims handling requirements ahead of a looming deadline.

ASIC deputy chair Karen Chester. Picture: Gary Ramage

Life insurers are rapidly running out of time to address remaining issues in their claims handling ahead of the October deadline set by the corporate regulator, which has threatened to take action.

An update on measures to reform total and permanent disability (TPD) insurance claims has found the nine insurers subject to review are still to meet key benchmarks set by the Australian Securities and Investments Commission.

Nine insurers have been subject to surveillance by ASIC after launching a review of the industry in 2019.

TPD provides a lump sum benefit to policyholders if they become too injured or ill to work again.

ASIC data shows around nine million Australians hold TPD insurance, with about 86 per cent receiving coverage via their superannuation funds.

Data from the Australian Prudential Regulatory Authority shows 89 per cent of TPD claims received by those holding policies through their superannuation were admitted in 2020.

The review is focusing on the nine insurers: AIA, AMP Life Limited, Hannover Life RE, MetLife, MLCL, QInsure, TAL, Westpac Life, and Zurich.

Eight of the nine insurers have completed their reviews of claims handling processes.

ASIC finds these insurers have primarily changed the “use of restrictive TPD definitions and onerous claims handling practices” since the start of the review.

The regulator finds while some insurers are more advanced than others, many are being hampered by data collection and management.

Some insurers have reduced claims handling wait times and tightened controls around requests for information from policyholders, which ASIC notes will make it easier to file claims.

In its interim report on the industry ASIC notes insurers “need to consider product design now to comply with the design and distribution obligations”.

If insurers are unable to meet the October 5 deadline ASIC has threatened it may launch “physical surveillance and nondisclosure investigations”.

“If we find evidence of practices in breach of the law including the duty of utmost good faith. ASIC will consider targeted surveillance of insurers if they do not address the consumer harms,” the regulator said.

“ASIC will continue to analyse claims data to identify outliers or trends which indicate potential consumer harm, and will act if we see problems in claims data such as lengthy claims handling time frames or high rates of claim-related disputes.”

ASIC Deputy Chair Karen Chester said the regulator’s review had shown product design and claims handling were resulting in “poor consumer outcomes”.

“While all nine insurers are working to repair the TPD safety net in response to our 2019 findings, our follow up work reveals more needs to be done,” she said.

“Important areas for improvement remain, such as better ways to store and use data. We found that data captured by insurers is often inconsistent or not in a searchable or reportable format, limiting its usefulness.”

Ms Chester said the next step required superannuation trustees engaging with TPD design to lift standards.

“While some trustees have taken positive steps in this direction, others have more work to do,” she said.