ASIC has released Report 498 Life insurance claims: An industry review which focused on life insurance claims by policyholders, assessing the outcome of claims and details of disputes about claims, as well as reviewing information about insurers’ policy documentation, information about claims staffing, systems and procedures, and sales practices. The review did not find evidence of cross-industry misconduct across the life insurance sector in relation to life insurance claims payments and procedures. Overall, where a decision has been made, 90% of claims are paid in the first instance. However, ASIC has made a number of recommendations to address issues of concern in relation to declined claim rates and claims handling procedures associated with: (a) particular types of policies, notably TPD; (b) particular insurers (typically for particular policy types); and (c) particular causes for consumer disputes. For the products ASIC reviewed, declined claim rates were highest for TPD (average declined claim rate of 16%) and trauma cover (average declined claim rate of 14%). They were lowest for life cover (average declined claim rate of 4%) and income protection cover (average declined claim rate of 7%). Although the considerable majority of claims are paid, ASIC is 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 recommendations To address these issues, ASIC has recommended that the regulatory framework for claims handling is strengthened by removing the current exemption for ‘insurance claims handling’ from the definition of a ‘financial service’ in the Corporations Act, and by introducing more significant penalties for misconduct in relation to claims practices. Removing the exemption for claims handing would allow ASIC to take action on conduct such as incentive schemes for claims staff that conflict with the insurer’s obligation to assess each claim on its merit. Financial Services Minister O’Dwyer has asked Treasury to proceed with this recommendation and undertake targeted consultation on the merits of removing the exemption for claims handling practices. Financial Services Minister O’Dwyer also stated that the introduction of penalties for misconduct in relation to claims practices will be considered as part of the forthcoming review of ASIC’s enforcement. The Australian Prudential Regulation Authority (APRA) has sent letters to life insurers and superannuation trustees setting out its expectations for improvements to the oversight and handling of insurance claims. ASIC has also recommended that the coverage of life insurance claims by dispute resolution schemes should be considered as part of the current inquiry into external dispute schemes (the Ramsay Review). ASIC has made a number of recommendations for the insurance sector to undertake including:

• immediately review the currency and appropriateness of policy definitions
• examine and ensure advertising and representations about the cover align with the definitions and the policy, and report any discrepancies to ASIC
• ensure that claims timeframes are consistent with industry standards and expected claims timeframes are adequately communicated to policyholders
• ensure that incentives and performance measurements for claims-handling staff and management do not conflict with the obligation to assess each claim on its merit.

Separately ASIC has announced that its investigation into CommInsure is ongoing.