The Turnbull Government welcomes the release today of the Australian Securities and Investments Commission’s (ASIC) report on claims handling practices in the life insurance industry.
Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer, said the Government requested the industry-wide review in March 2016, following the allegations around claims handling practices within CommInsure. The purpose of the review was to establish whether there are systemic issues across the industry that require further scrutiny and/or regulatory reform.
While ASIC’s review found no evidence of systemic misconduct in relation to life insurance claims practices, a number of areas of concern were identified. These include claims denial rates and claims handling procedures in relation to:
- particular types of policies, notably total and permanent disability (TPD);
- particular insurers (in respect of some policy types); and
- particular causes of consumer disputes.
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. 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.
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 powers, which will be launched in the coming week.
Utilising the additional ASIC funding package announced by the Government in April this year, ASIC will carry out further targeted reviews and surveillance in the areas of concern, to determine whether additional regulatory reform is required.
ASIC also recommends extending the jurisdiction of external dispute resolution to better enable consideration of issues of fairness and access, and this will be considered by the review, led by Professor Ian Ramsay, into the external dispute resolution schemes in the financial sector. The Ramsay Review is due to provide its interim report to Government in November this year.
Critically, ASIC has confirmed that it will work with the Australian Prudential Regulation Authority (APRA) to collect and publish data provided by insurers on an ongoing basis, showing rates of declined, approved and withdrawn claims, timeframes for claims decisions and details of insurance-related disputes.
“This data will be available to consumers for the first time at the individual product and distribution channel levels, providing a means for consumers to assess the claims performance of the life insurance sector,” Minister O’Dwyer said.
“While the findings of the ASIC review are welcome, there are clearly areas where the industry must do more to improve consumer outcomes and help restore public trust in the life insurance sector.”
In response to the Life Insurance Code of Practice (the Code), launched by the Financial Services Council (FSC) on 11 October 2016, Minister O’Dwyer has said she expects the FSC and life insurance industry will take the necessary steps to ensure that the Code is enforceable across the whole industry, by gaining ASIC approval of the Code.
“ASIC should work collaboratively with the FSC and the industry to approve the Code. Once the Code is approved, the Government will give ASIC the necessary powers to enforce the Code, so as to ensure financial services licensees’ compliance with the Code,” Minister O’Dwyer said.