What does ASIC’s life insurance review mean?

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In October 2016 the Australian Securities and Investments Commission (ASIC) handed down a report into the handling of claims by the life insurance industry. This was in responses to criticisms of outdated definitions being used to avoid payouts and conflicting interests in the sale of policies.

The regulator found “significant shortcomings” in the way insurance providers handled claims. As a result, a number of recommendations have been made which are aimed at improving the claims process for Australians with life insurance.

As part of the review ASIC examined three years of data from 15 different providers, which account for 90% of the life insurance market, focusing on the the four main life insurance policies: death cover, total and permanent disability cover (TPD), trauma insurance, and income protection insurance.   

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What did ASIC find?

  • That 90% of life insurance claims were paid the first time around, and that they made up roughly $8 billion in policy payments from June 2015-June 2016.
  • TPD insurance claims were the most commonly rejected of the four categories, with an average decline rate of 16% across the 15 insurance providers.
  • Trauma claims were the second most commonly rejected, with a decline rate of 14%.
  • ASIC noted a “considerable variation” in declined claims between providers, with TPD claims rejected 37% of the time by one insurance company, and trauma claims rejected 25% of the time by another insurance company.

What has ASIC recommended?

A new public reporting system for claims. ASIC noted that there was a general lack of public trust in the life insurance industry. To improve this and make the claims process more transparent they have been working with the Australian Prudential Regulation Authority (APRA) and the individual insurance providers to make claims data more accessible. Policies can now be compared in APRA's biannual release of life insurance claims data, with a more consumer-friendly option available via ASIC's moneysmart.com.au.

Encourage the government to strengthen the legal framework. The handling of life insurance claims are currently exempted from the Corporations Law. ASIC recommended the government remove this exemption, and also allow them ASIC greater powers to penalise misconduct by insurance companies. Read the 2019 insurance claims handling proposal here.

Strengthen the consumer resolution process. ASIC wants to ensure that issues of fairness are more often taken into account during the claims process between insurance providers and consumers.

Follow up reviews for problem areas. ASIC intends to continue to review areas which were identified in the report as being particularly concerning. These include looking at insurance companies with high decline and dispute rates and investigating the process and high rejection rate for TPD claims.

Strengthen industry standards and code of practice. ASIC will review the appropriateness of definitions used by insurance providers, which have come under fire for being deliberately out of date and used to deny claims. They will also ensure that there are no conflicts of interest between staff ‘performance measurements’ and potential to fairly assess claims.

What can you do if your claim has been rejected?

  • Ask for your claim to be reviewed. Life insurance providers are required to have an internal dispute resolution system through which your case can be looked at again, so before you do anything make sure you get your claim reviewed.
  • Contact the financial ombudsman. If you’re still dissatisfied with the results of the internal review by your insurance company you can lodge a dispute with the Australian Financial Complaints Authority (AFCA) and potentially take legal action against the insurance provider.
  • Lodge a complaint with ASIC. If you believe that your life insurance provider's conduct wasn’t up to scratch or they failed somehow in the delivery of your life insurance, then you can lodge a complaint with ASIC.

If you want to learning more about you life insurance options, head to Mozo's life insurance comparison page.

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