ASIC review identifies gaps in life insurance industry practices

ASIC review identifies gaps in life insurance industry practices | Insurance Business Australia

ASIC review identifies gaps in life insurance industry practices

The Australian Securities and Investments Commission’s (ASIC) newly released review of nearly 5,000 individual disability income insurance (IDII) claims received from January 1 to June 30, 2021, revealed gaps in the life insurance industry’s practices.

The IDII claims review follows ASIC’s 2019 Report 633 Holes in the safety net: a review of TPD insurance claims (REP 633) and follow-up 2021 Report 696 TPD insurance: Progress made but gaps remain (REP 696), which examined claims handling practices in the context of total and permanent disability (TPD) insurance.

It highlighted that more work is needed to ensure consumers are protected from unfair practices in non-disclosure investigations and physical surveillance. As a result, some life insurers have improved their practices while ASIC continues to focus on life insurers that had a higher proportion of potentially unwarranted investigations identified in the review.

ASIC deputy chair Karen Chester commented that the review aimed to determine whether insurers were establishing good practices, especially with those subject to new claims handling obligations.

“Our previous reviews and the Royal Commission identified concerns around the misuse of investigative tools by insurers and resulting consumer harms. Following the Royal Commission, we took action against TAL for breaches of its duty of utmost good faith in handling claims. Changes to the Corporations Act on January 1, 2022, mean that insurers are now legally obliged to act efficiently, honestly, and fairly when handling claims,” she said.

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ASIC has written to the life insurers covered by the review to outline areas for improvement and communicate expectations for using investigative tools, including the obligation to handle claims efficiently, honestly, and fairly. The participants were:

  • AIA Australia Limited (AIAA), comprising AIAA and The Colonial Mutual Life Assurance Society Limited (CMLA);
  • TAL Life Limited (TAL), comprising TAL and Asteron Life & Superannuation Limited (Asteron);
  • Zurich Australia Limited (Zurich), comprising Zurich and OnePath Life Limited (OnePath);
  • MLC Limited;
  • Resolution Life Australasia Limited (formerly AMP Life Limited); and
  • Westpac Life Insurance Services Limited (Westpac; now TAL Life Insurance Services Limited as of August 1, 2022).

Following the review, Chester said ASIC remains concerned that some insurers still “fish” for non-disclosures to avoid paying out legitimate claims.

“We are putting insurers on notice that we will take action where we see consumer harm from poor claims handling practices,” she said.

ASIC also noted concerns around mental health claims and investigations.

“Non-disclosure investigations and physical surveillance are intrusive measures, and insurers must ensure they have reasonable grounds to undertake them. We expect physical surveillances to be used as a last resort only,” Chester said.