The corporate regulator is calling on life insurers to review the accuracy of their systems and controls for claims calculations and payments.

The catalyst for the regulator’s announcement was due to system failures that have been identified showing the incorrect application of CPI to life insurance policy benefits among other benefit payment errors.

In a media release Monday morning, ASIC said it had received breach reports from seven life insurers for the miscalculation of life insurance benefits. The errors resulted in the affected customers being either under or overpaid on their claims.

Under the life insurers’ remediation programs, claims were re-calculated and remediation payments (including interest) made to customers who were underpaid on their claim. Where customers were overpaid, they were not required to repay.

The following life insurers have undertaken remediation in the last three years due to claims calculation and payment issues:

  • AIA Australia
  • Asteron Life & Superannuation (now TAL)
  • Resolution Life
  • Swiss Re Life & Health Australia
  • TAL Life
  • The Colonial Mutual Life Assurance Society Limited (now AIA)
  • Westpac Life Insurance Services Limited (now TAL)

The seven insurers have implemented system fixes over the last three years. They have each commenced customer remediation programs which six have completed.

Resolution Life Australasia (previously AMP Life) has provisioned $50 million for its ongoing remediation program. The insurer is currently reconciling over 32,000 claims files to identify those that have been underpaid to customers.

The miscalculation of policy benefits can be attributed to failures by life insurers to correctly interpret or apply product rules. The root causes (which we expect insurers to examine and rectify) may be a result of:

ASIC said the root causes could be due to:

  • Complex product rules (particularly those related to indexation) that are not correctly captured and implemented in policy administration and claims processes and systems;
  • Inadequate staff training, particularly where complex manual processes for assessing and calculating income protection benefits are required;
  • An array of inter-related and outdated ‘legacy’ technology systems, including policy administration and claims systems;
  • Ineffective controls in place to prevent and detect the incorrect application of product rules; and
  • Inadequate and ineffective monitoring of implemented product rules.

In any case, ASIC said it expects these issues to be rectified.