Life lessons

Life insurers are facing the critical glare of the public, politicians and regulators following a recent media expose alleging poor claims handling and unethical conduct by a prominent insurer. 

Those in the sector should be prepared to explain their own claims management philosophies and practices and the adequacy of products by reference to the definitions used for medical conditions that trigger claims under a policy.

In brief

• There has been a strong political and regulatory response to recent media reporting on poor claims handling and whistle blower revelations of unethical behaviour in the life insurance industry.
• There will be ongoing scrutiny of the life insurance sector with a Senate Inquiry and ASIC investigation.
• Each insurer should consider an approach and response that is appropriate to its business, products and claim experience. There is no one size-fits-all approach to tackling these issues.

It is fair to say that the last few weeks has been a tumultuous time for the life insurance industry following the ABC Four Corners’ Report – Money For Nothing.¹ There has been wide ranging media commentary and responses from government and regulators concerned to identify whether there are in fact systemic issues in this industry resulting in poor customer outcomes and evidence of unethical behaviour. There have been calls for a royal commission however, it seems for now at least, the issues will be ventilated in an ASIC review² of claims management practices and expanded terms of reference for the Senate Economics Reference Committee.³ A number of life companies have indicated that they will be focusing on whether their products or processes might be exposed to similar criticisms levelled by the Four Corner’s Report.

These latest events have drawn statements about expectations on companies to act ethically, to treat customers fairly and to act with utmost good faith. These are statements of principle and in the case of 'utmost good faith' – a legal duty implied in most insurance contracts in Australia.  However, these concepts are nuanced, imprecise and subject to differing interpretation and meaning. The context of a particular situation will colour and shape those terms.

Increasingly, we are seeing public opinion and media shape the expectations and standards by which companies are to be held account and the adverse impact on brand where a company is considered to have failed to meet those standards. 

These expectations and standards are not static and will need to be considered by an insurer having regard to their own experiences, product suite and current systems and processes. For some it may be appropriate to have product definitions and claim processes independently reviewed – for others, the focus of any review may be more limited.

We note that there is no ‘one-size fits all’ approach

It would not be logical and it may be an unnecessary expense, to undertake a review of treatment of past claims without an appropriate review framework, ie a set of specific terms being applied which would refine the scope of such a review.

As a useful starting point, we have prepared the following overview of the types of questions to consider. 

Benefit design and definitions in life policies

• What types of trauma and critical illness insurance cover is provided and through what channels?
• The Four Corners’ Report focused on a definition of a heart attack and whether it was outdated with current clinical diagnosis and assessment. However, look at the suite of critical illness definitions that use medical terminology and diagnosis eg, rheumatoid arthritis, cancers, dementia and other degenerative diseases.
• Are the medical definitions reviewed on a regular basis? When was the last review?
• Who is involved in the review ? Eg, specialists. To what extent are the definitions benchmarked with market practice?
• Does the definition provide the insurer with a discretion to apply some other basis or test? If so, in what circumstances is the discretion exercised?
• Do claims reviews and IDR experience suggest any patterns of claimants alleging these types of definitions are unresponsive or have been applied unreasonably in claims situations?
• How clearly are features explained in the policy? Does the policy use lots of medical terminology and language?
• How prominent are PEC clauses in a policy document? Are they adequately explained and brought to the attention of the policy owner where the policy is sold on the basis of no underwriting?

Claims Processes

• What is your approach to the use of IME reports?  Is your use of IMEs scaled according to the complexity of the medical issues in a claim?
• Do you have a medical experts panel? How is that comprised? What are the criteria for inclusion on the panel? How often is the panel reviewed?
• The way in which medical reports are used to assess claims – is there a company view on how many reports are reasonable? Is there any suggestion of evidence shopping in relation to medical reports?
• How do you check for procedural fairness in claims processes?
• How and when is surveillance used in claims? Do you have a policy for surveillance use?
• Is there difference treatment for claims involving mental illness versus other types of claims?
• Do you have specific timeframes for claims management? How transparent is the claims process for an individual claimant?
• Role of Chief Medical Officer (CMO) in business and the independence of that role.
• Document management protocols and integrity of claims records and medical reports.

Claims Personnel

• Skills and authority of claims management staff – to what extent are complex claims peer reviewed?
• How are claims staff remunerated?
• The commitment to training of claims staff in relation to good practice, ethics and discharge of duties to customers.
• Does the organisation have a code of ethics or standards?
• Charter and membership of the claims review committee.

Standards of treatment for individual claimants

• What steps or processes are in place to ensure the duty of utmost good faith is discharged in the claims management process? 
• Is there any assessment made of the vulnerability of the claimant by reference to their illness, disability, support or financial circumstances? If any such assessment is made, how does this impact on the claims management process used ?
• Communication with the claimant and their adviser: do you have time frames and protocols in your business? How transparent is the claims process? What is the level of commitment of the claims management team to those time frames?
• What is the process of engagement with a superannuation trustee in group insurance claims context?

The Life Insurance Team at HSF have been focussing on these issues and whether and how appropriate due diligence on products processes should be arrived at.

This article was written by Claire Machin, Special Counsel, Sydney.

Endnotes

1. Aired on the ABC on March 7 2016.
2. Peter Kell, ASIC Deputy Chair confirmed at the FSC Life Insurance Conference in Sydney on Wednesday 16 March 2016, that ASIC will be conducting a review of claims handling practices in CommInsure arising from the recent allegations. There is some suggestion that ASIC will consider claims handling experience more broadly across the sector but the timing of this is not clear.
3. The terms of reference of the Senate Economics References Committee Inquiry on Scrutiny of Financial Advice was expanded on 2 March 2016 to cover the additional matters: a) the need for further reform and improved oversight of the life insurance industry; b) whether entities are engaging in unethical practices to avoid meeting claims; c) whether a life insurance code of conduct is required; d) the role of ASIC in reform and oversight of the industry; and e) any related matters.

More information

For information regarding possible implications for your business, contact Michael Vrisakis, Claire Machin or Sarah Yu.