There have been two significant developments affecting the life insurance sector:

  • ASIC has released its report on life insurance claims
  • the Life Insurance Framework bill has been reintroduced into Parliament.

ASIC Industry Review of Life Insurance Claims

ASIC Report 498 has found that there are significant shortcomings in a number of areas of life insurance claims handling and that there is a clear need for public reporting on life insurance claims outcomes. A copy of Report 498 and ASIC's media release are available here: 16-347MR ASIC issues industry review of life insurance claims

ASIC has set out the following actions it will pursue to improve standards in life insurance claims handling:

  • establishing with APRA a new public reporting requirement for life insurance industry claims data and claims outcomes including claims handling timeframes and dispute levels across all policy types with data made available on an industry and individual insurer basis – presumably this will be done through an APRA reporting standard;
  • strengthening the legal framework covering claims handling – ASIC proposes to remove the exemptions for claims handling from the definition of financial service in Chapter 7 of the Corporations Act which would mean that a licence would be regard to engage in claims handling and the general licensee duties would apply, e.g. efficiency, honesty and fairness, conflicts management, compliance, competence, etc.;
  • strengthening the consumer dispute resolution framework for claims handling by ensuring more effective consideration of fairness and better remedies for delays in claims handling;
  • targeted follow-up ASIC reviews on areas of concern (see first table below); and
  • strengthening industry standards and practices (see second table below), which may include amendments to the life insurance code of practice.

ASIC will be undertaking the following further work in relation to life insurance claims.

Area

Description

Timeframe (work commencing)

Declined claim rates

Targeted surveillance work to examine the reasons for substantially higher than average decline rates and withdrawn claim rates for particular insurers, and consider regulatory options where these reasons cannot be justified.

Now

Dispute rates

Targeted surveillance work to examine the reasons for substantially higher numbers of disputes for particular insurers than their share of claims, focusing on the areas of evidence and delay which had the highest numbers of disputes.

Now

TPD claims

Reviews across the industry on TPD claims files and systems, focusing on claims procedural issues (such as timeframes and evidence) and also any additional findings from targeted surveillance work.

Mid 2017

Data reporting

Work with stakeholders to establish a consistent public reporting regime for claims data and claims outcomes.

.

Now

Sales practices

Thematic industry review of life insurance sales practices, focusing on sales of non-advised policies, and take enforcement action where necessary.

Between now and January 2017

Policy definitions

Follow-up review of the currency and appropriateness of policy definitions and consider options (including the need for law reform) if there are still concerns about the currency and appropriateness of policy definitions.

Late 2019

ASIC also expects life companies to undertake the following further work.

Area

Description

Timeframe

Policy definitions and scope of cover

  • Review the currency and appropriateness of policy definitions;
  • consider the scope of the definition of ‘unexpected circumstances’ in the Code and how its use will be monitored and reported;
  • examine advertising and representations made about the scope of cover to ensure that this is aligned with the definitions and cover provided, and report any discrepancies to us.

Immediately, and reviewed every three years and updated where necessary (in accordance with the Code)

Claims handling

  • Ensure claims timeframes are consistent with industry good practice;
  • ensure that expected claims timeframes are adequately communicated to policyholders;
  • consider whether their processes adequately justify fraud risk mitigation (including surveillance, particularly for mental health claims) and include monitoring the conduct of fraud risk investigators;
  • 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.
  • Immediately

Sales practices and disclosure

  • Consider ASIC’s previous work on sales practices in other areas and apply these principles to life insurance sales where appropriate (including the use of formal sales scripts, obtaining evidence of consent to purchase the policy, and ensuring that there is clear disclosure of the premium structure);
  • ensure that policy documents provided to policyholders (e.g. PDSs, application forms and claim forms) are clear and understandable.

Immediately

Life Insurance Framework Bill

The government has also reintroduced into Parliament the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 (Cth) (Bill). The original Bill lapsed in Parliament on 15 April 2016. It is proposed that the new Bill will take effect from 1 January 2018.

A copy of the Bill and its Explanatory Memorandum (EM) are can be found here.

The new Bill does not include any fundamental changes to the proposed commission caps, their amounts, clawback or grandfathering arrangements of the original Bill.

However, there are two key changes in the Bill released today:

  • the new requirements can apply where no advice is provided as there will be a power for regulations to prescribe other circumstances where a benefit paid in relation to life insurance is conflicted remuneration;
  • grandfathering applies to products issued or applied for before 1 July 2018 whether or not remuneration is paid under an existing arrangement.