ROSS GREENWOOD:
Many thanks for your time Kelly.
KELLY O’DWYER:
Great to be with you again Ross.
ROSS GREENWOOD:
This whole notion of trust in your insurance industry, if I am totally and permanently disabled and I go to my insurer and say, here is my situation, here’s my doctors certificate, pay out my total and permanent disability that’s associated with my super, I’d expect it to be paid. What did you discover?
KELLY O’DWYER:
Well you would expect it to be paid, but what ASIC discovered after we asked them to conduct a systemic review is that despite their initial findings that there wasn’t systemic misconduct across the industry, there were some significant problems with certain areas of denial rates and claims handling procedures and that did relate to total and permanent disability, it did relate to particular insurers in respect to some policy types, and particular causes of consumer disputes.
ROSS GREENWOOD:
What was it you found?
KELLY O’DWYER:
There are some life insurers that have rejected 37% of claims.
ROSS GREENWOOD:
More than one in three? In other words more than one in three turns up with their doctor’s certificate, they expect to be paid out, they for all intents and purposes are totally and permanently disabled and the insurer says sorry, we’re not paying your claim.
KELLY O’DWYER:
And that is very, very concerning, which is why we’re taking action right away in relation to insurance claims handling. You would be aware, Ross, but your listeners might not be aware, that it has been exempt from the definition of a financial service in the Corporations Act. What that means is, it means that ASIC can’t apply the same duties in relation to these insurance claims handling that would otherwise apply to services that would fall under an Australian Financial Services licence. It means that they haven’t been able to take action on conduct such as incentive schemes for claims staff that conflict with an insurer’s obligation to assess each claim on its merit. We’re going to get rid of this exemption. I have immediately, in response to ASIC’s recommendation, got Treasury to start doing the work on this so that we can get rid of this exemption so that we can ensure that every person can have confidence that their claim will be assessed in good faith, and that ASIC will be able to take action if it is not.
ROSS GREENWOOD:
You and I did not come down in the last shower. We would recognise that there would be people in our communities who would try and take advantage of their insurance company. Some of those people might be in financial hardship or they might recognise they have an insurance policy and as a result they might, let’s be honest, bung it on to try and actually get their insurance policy paid out. Insurance companies have to be vigilant about that, I’m certain that comes up in these figures, but when you actually see the average decline of the industry for total and permanent disability, which is a pretty basic form of insurance, is 16%, trauma insurance, which is a far more complex form of insurance, trauma is where you actually survive some sort of catastrophic illness or some condition but you stay alive, so actually you need to have the insurance paid out, well the actual decline rate there is 14%. But even so, to my mind, if the contracts are very clear, if the terms and conditions are very clear, the failure rate of these claims should not be as great as that.
KELLY O’DWYER:
And this is what has been identified by ASIC in suggesting that there are some concerns with these denial rates in relation to some insurers and the way that they handle claims handling when people actually come to the insurer with a claim, particularly for those that have obviously got a valid claim and are concerned that their valid claim has been denied. We want to make sure that ASIC is strengthened to be able to take action and so that’s why immediately, we’ve accepted the recommendation that they will have more powers in being able to intervene in these circumstances and we’re also strengthening their powers to be able to introduce more significant penalties for misconduct in relation to claims practices.
ROSS GREENWOOD:
Given the fact that recent Parliaments have knocked out the commissions that were previously payable to financial advisers, and particularly in superannuation products and so forth, of course there have been very large commissions in many cases paid on insurance products and so quite clearly, if you’re a sales type person and you can sell, the question is whether a, the products being sold are appropriate to the person’s needs, whether they’re being mis-sold, and therefore whether the commissions are too large and if in fact the person finds it’s unsuitable and changes it after a few years, well of course the person who sold it to you might not care because they got the money upfront. These are all issues aren’t they?
KELLY O’DWYER:
These are very significant issues Ross, and I was able to introduce legislation into the House today that gets rid of these ridiculously high upfront commissions for insurance salespeople or insurance advisers who are selling products to clients that are getting up to 130% upfront commission on a premium for 12 months and then churning through clients on 12 month basis, year on year, and going cha-ching, and being able to actually bank that, where it wasn’t actually in the client’s interest to change insurance policies. Now again, there have been three separate reports that have actually looked into this issue and actually found that where there are these very high upfront commissions and there is what is known to be conflicted remuneration, ASIC found that 45% of the files that they looked at didn’t actually meet the legal requirements. It wasn’t in the best interest of consumers. We think it’s very important that you do protect consumers. Consumers need to know that when they go to an adviser for advice that they are actually getting advice that is in their best interest.
ROSS GREENWOOD:
That’s the most important thing, there is no shadow of a doubt about that, that you’re not getting conflicted advice. Kelly O'Dwyer is the Minister for Revenue and Financial Services. That is long overdue I can tell you because the problem areas, and to be honest, there are very good insurance agents out there and advisers out there who do a brilliant job, there is no shadow of a doubt about that. But the problem is like all of these issues, as soon as you get these big commissions out there, you get absolute rogues in all industries. And not just one or two, I’m talking about hundreds and dozens of them who are selling inappropriate products and that’s got to be stamped out. Sadly, that also means life has got to change for the good operators as well. Kelly O’Dwyer, we appreciate your time.
KELLY O’DWYER:
Great pleasure Ross.