ASIC warns life insurers over ‘unwarranted’ surveillance

The corporate watchdog has raised concerns about the methods insurance companies use when investigating people who made have mental health claims, after a review found surveillance of some customers may have been unwarranted.

The Australian Securities and Investments Commission (ASIC) also said some insurers still appeared to be trying to avoid paying legitimate claims by going “fishing” for information that a customer may not have disclosed.

ASIC on Friday released the findings of a review into how insurance companies dealt with claims for disability income insurance, which provides cover to people who can no longer work because of illness or injury.

ASIC deputy chairman Karen Chester said surveillance of customers by insurance companies should be a “last resort”.Credit: Dominic Lorrimer

The 2018 royal commission into financial services misconduct highlighted cases of insurers spying on their customers who had made mental health claims, and a key topic in ASIC’s review was the “physical surveillance” of customers.

ASIC’s research, based on a review of nearly 4800 claims last year, suggested some insurers may still be putting customers under surveillance more than was warranted.

The report said physical surveillance - which can include using external investigators - was used in 10 mental health claims, and ASIC believed the surveillance “may have been unwarranted in half of these cases”.

ASIC said that across the entire study, which was wider than mental health claims, insurers used surveillance in 57 cases, or about 1 per cent of claims. The regulator believed surveillance may have been unwarranted in 10 of these cases because the insurer had not shown that other investigative methods had been exhausted.

The watchdog also highlighted an issue known as “fishing” — where an insurer actively looks for information that a customer did not disclose to avoid paying a legitimate claim.

It said five unnamed insurers appeared to start these non-disclosure investigations simply because a claim had been made within three years of a policy being written or renewed, and this heightened the risk of “fishing”. ASIC said 40 per cent of these non-disclosure investigations related to mental health non-disclosure.

ASIC deputy chair Karen Chester reminded the industry that under changes that took effect in January, insurers must act “efficiently, honestly and fairly” in handling claims.

It is legal for insurers to put customers under surveillance, but the regulator says it should be strictly controlled, and used only if the insurer cannot verify information in another way.

“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,” Chester said.

An ASIC spokeswoman added that if a claim involved a mental health issue, there was a risk that surveillance by an insurance company could exacerbate the customer’s condition.

A spokeswoman for the Financial Services Council pointed to a new life insurance code of practice that will come into effect next July, saying this would address concerns raised by ASIC and further restrict the use of surveillance. The new code also had provisions to prevent insurers using “fishing”, she said.

“The new code lifts claims handling standards across the industry and will mean consumers can make a claim on their life insurance policy with confidence they will be treated fairly and compassionately,” she said.

ASIC’s investigation covered industry giants AIA Australia (which bought the Commonwealth Bank’s life insurance business), TAL, Zurich, MLC, Resolution Life (which bought AMP’s business), and Westpac’s previously owned life business.

ASIC said its inquiries were continuing with insurers that had a higher proportion of potentially unwarranted investigations.

“We are putting insurers on notice that we will take action where we see consumer harm from poor claims handling practices,” Chester said.

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