ASIC has given a stern warning to life insurers over concerns of potential consumer harm resulting from misuse of non-disclosure investigations and physical surveillance during the claims handling process.
The corporate regulator reviewed 4,800 individual disability income insurance (IDII) claims from the first half in 2021 which has already resulted in several life insurers making improvements to their practices.
However, the regulator is continuing to inquire with life insurers that have a higher proportion of “unwarranted investigations” from the review.
ASIC deputy chair Karen Chester said previous reviews, along with the Hayne royal commission, identified concerns over misuse of investigate tools by insurers that resulted in harm to the consumer.
“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 1 January 2022 mean that insurers are now legally obliged to act efficiently, honestly and fairly when handling claims.”
Chester said the latest review tested whether insurers are engaging in good practices, particularly as they are under the new regulatory obligations, but also to identify potential improvement.
“Following the review, we remain concerned that some insurers still appear to be ‘fishing’ 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.”
Chester said the regulator was particularly concerned with how mental health claims are being investigated.
“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.”
AIA, TAL Life, Zurich Australia, MLC Life Insurance, Resolution Australia and Westpac Life Insurance (now part of TAL) participated in the review and the regulator has written to each of them outlining areas of improvements.
Looking over your shoulder
The review found non-disclosure investigations were conducted in around 5 per cent of claims and physical surveillance conducted in only 1 per cent of claims.
There were 10 mental health claims with physical surveillance involved and ASIC deemed it was unwarranted in half of those cases.
The regulator found surveillance was unwarranted in 17.5 per cent of claims overall.
Five insurers commenced non-disclosure investigations because the claim was lodged within three years of a policy inception or renewal.
IDII cover can be obtained directly or through an adviser although the ASIC surveillance did not state whether adviser claims led to more infractions.
Insurers use non-disclosure investigations to confirm claimants provided the required information about their medical history when they applied for their policy which can involve physical surveillances in some circumstances.
Legislative changes brought in after the royal commission imposed civil penalties on insurers that failed to act towards insured clients without good faith, but the penalties didn’t apply at the time the conduct occurred.
