ASIC renews calls against miscalculation of life insurance benefits

The Australian Securities and Investments Commission is calling on life insurers to review their systems and controls for claims calculations following its identification of system failures from seven life insurers that resulted in customers being either overpaid or underpaid on their claims.

ASIC said it previously received breach reports from seven life insurers on the miscalculation of benefits: AIA Australia, Asteron Life & Superannuation (now TAL), Resolution Life Australia, Swiss Re Life & Health Australia, TAL, the Colonial Mutual Life Assurance Society (now AIA), and Westpac Life Insurance Services (now TAL). Upon review, the regulator found that the miscalculation of benefits stemmed from an incorrect interpretation of product rules, which in turn resulted from:

1. Complex product rules related to consumer price indexation (CPI) not correctly captured in policy administration and claims processes;
2. Inadequate staff training, particularly where complex manual processes for calculating income protection benefits are required;
3. Outdated 'legacy' technology systems, including policy administration and claims systems;
4. Ineffective controls that prevent and detect the incorrect application of product rules; and
5. Inadequate and ineffective monitoring of implemented product rules.

ASIC noted that the same problems plagued workers’ compensations schemes, which likewise involved calculating the claimant’s income and benefits under an insurance policy.

All seven life insurers which self-reported their miscalculation of benefits to ASIC have implemented system fixes over the last three years. Six of the seven have already completed their customer remediation program, with Resolution Life Australasia (previously AMP Life) putting in $50 million for its ongoing remediation program for underpaid customers. Where customers were overpaid due to a miscalculation of benefits, they were not made to repay.

“Consumers need to have confidence that their insurers will calculate and pay their claims accurately,” said ASIC deputy chair Karen Chester. “With seven life insurers now having self-reported this breach to us, we are calling on all remaining life insurers to ‘review to ensure’ that this problem does not extend to them. If it does, we expect life insurers to find and fix system problems and follow our remediation guidance to conduct a fair remediation and return money owed to customers in a timely way.”

ASIC reminded insurers that the failure to accurately calculate and pay the benefits promised under a claim put insurers in danger of breaching their duty to handle claims efficiently, honestly, and fairly.

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