Earlier this week, ASIC released the findings of its industry-wide claims handling review, which was launched in response to the CommInsure scandal.
The review found that some insurers had substantially higher-than-average declined claims rates and a substantially higher-than-proportionate share of disputes about claims. One insurer had a denied claim rate of 37 per cent on its total and permanent disability products, 19 percentage points above the average rate.
Appearing before the House of Representatives Standing Committee on Economics this morning, ASIC senior executive leader Michael Saadat said two life insurers were found to be remunerating their staff using a “balance scorecard” that included incentives related to the number claims denied.
Mr Saadat declined to name the two insurers using incentives, saying ASIC received the information based on confidentiality.
He said, however, he does not expect these structures to continue.
“In the future, no insurer will have these kinds of incentive structures in their incentive plan. The life insurance code of conduct released on Tuesday – one of the elements of that code is that insurers are required to remove any incentives that relate to the number of claims declined,” he said.
“We expect that the two insurers that did have that issue will not have that issue going forward.”
Also during the inquiry, committee chair Liberal MP David Coleman asked ASIC where the rules stand in relation to banning managers in instances of adviser misconduct.
“It seems to me that there is an issue here where individuals, say financial planners, who are found to have breached rules are dealt with but senior management, who haven’t actually provided the advice, frankly seem to have not suffered substantial consequences,” Mr Coleman said.
ASIC chairman Greg Medcraft agreed with this statement, adding it was raised in the Financial Systems Inquiry report last year and that progress was being made.
“It’s often not just a problem with bad apples. It’s often a problem with the tree, so let’s deal with the tree. That is being addressed,” Mr Medcraft said.
I wonder if they will name the super funds responsible for accepting the payments… Reasonable to guess that they will not as we all know what funds they are.
I wonder if they will draw a link between remuneration and policies selected by certain super funds like the have with commissions and advisers?
I would like to see the AFA and FPA support Advisers and support the naming of the guilty !!
I am personally surprised by these findings as after nearly 49 years in our Industry I have nothing but praise to give the claims side of the Life Offices as they are far more efficient than any other area. One must question the hypocrisy of the premis of the LIF as it is NOT the misalignment of financial incentives to Advisers but Life Office inefficiencies. This report highlights this once again.
A poor claims service (and conversely great cost management) is not just about blatant denying of claims. It can also be achieved through more subtle means, such as high claims officer caseloads, and outsourcing specialist opinions (as opposed to in-house medical and allied health professionals)?
Consider the cumulative effect of increasing the caseload per officer (lower staff costs) and outsourcing specialist reviews (as opposed to in-house – i.e. also lower staff costs). Then include specific directives on when not to use a specialist opinion so as to manage unnecessary expenses (hmmm… delays anyone?). It also means the Insurer can easily stop sending work to a specialist and redirect elsewhere if they don’t agree with their opinion.
Then add the incentive structure mentioned in this article on top of that.
In some Insurers this has led to a claims culture of “hmmm… these mental health/cancer claims, gee these people are a bunch of whingers they should pick themselves up”. Think I’m kidding? See the following link:
http://www.brisbanetimes.com.au/queensland/cancer-patients-taking-advantage-of-life-insurance-comminsure-analyst-20140729-zy9a6.html
But as @Charmaine suggests “Don’t make a simple mistake in your SoA’s though, that will get you named and shamed”.
The life industry pays out $4 Bill+ per year in claims, but is clearly losing it’s way. The FSC is on the wrong track if their plan is to restore profitability by emasculating advisers/retail, while strengthening group/direct. Group/Direct have always had higher complaints rates, well above advisers/retail (refer to SCT complaint reports for Group, and for Direct refer to APRA Insight Issue 3, 2012 ). The regulators have known this for years!! (Hello FPA/AFA??)
Life Insurers already have a reputational issue, all FSC are doing now is making it worse. No amount of spin from their PR teams will whitewash this. It’s service and claims results on the ground that is needed.
ASIC needs to be far more aggressive with FSC and Life Insurers. They should establish a compulsory independent claims review service (e.g. like Sue Laing’s C-MAP service) and have the results displayed publicly – on an annual basis. Advisers and Licensees can then consider it when preparing their advice and APLs. The focus will inevitably shift to the meaty parts of Insurers’ claims service and not silly add-on policy features that detract from the true purpose of the product.
C’mon ASIC/FPA/AFA, we want our clients’ best interests to come first!
A poor claims service (and conversely great cost management) is not just about blatant denying of claims. It can also be achieved through more subtle means, such as high claims officer caseloads, and outsourcing specialist opinions (as opposed to in-house medical and allied health professionals)?
Consider the cumulative effect of increasing the caseload per officer (lower staff costs) and outsourcing specialist reviews (as opposed to in-house – i.e. also lower staff costs). Then include specific directives on when not to use a specialist opinion so as to manage unnecessary expenses (hmmm… delays anyone?). It also means the Insurer can easily stop sending work to a specialist and redirect elsewhere if they don’t agree with their opinion.
Then add the incentive structure mentioned in this article on top of that.
In some Insurers this has led to a claims culture of “hmmm… these mental health/cancer claims, gee these people are a bunch of whingers they should pick themselves up”. Think I’m kidding? See the following link:
http://www.brisbanetimes.com.au/queensland/cancer-patients-taking-advantage-of-life-insurance-comminsure-analyst-20140729-zy9a6.html
But as @Charmaine suggests “Don’t make a simple mistake in your SoA’s though, that will get you named and shamed”.
The life industry pays out $4 Bill+ per year in claims, but is clearly losing it’s way. The FSC is on the wrong track if their plan is to restore profitability by emasculating advisers/retail, while strengthening group/direct. Group/Direct have always had higher complaints rates, well above advisers/retail (refer to SCT complaint reports for Group, and for Direct refer to APRA Insight Issue 3, 2012 ). The regulators have known this for years!! (Hello FPA/AFA??)
Life Insurers already have a reputational issue, all FSC are doing now is making it worse. No amount of spin from their PR teams will whitewash this. It’s service and claims results on the ground that is needed.
ASIC needs to be far more aggressive with FSC and Life Insurers. They should establish a compulsory independent claims review service (e.g. like Sue Laing’s C-MAP service) and have the results displayed publicly – on an annual basis. Advisers and Licensees can then consider it when preparing their advice and APLs. The focus will inevitably shift to the meaty parts of Insurers’ claims service and not silly add-on policy features that detract from the true purpose of the product.
C’mon ASIC/FPA/AFA, we want our clients’ best interests to come first!
I imagine the reason they do not want to publicly name these insurance companies is because the figures relate to these companies selling direct business and this can’t be blamed on risk advisers. We wouldn’t want the truth to come in the way of getting rid of advisers through the LIF would we??!
When bank advisers do the wrong thing they are publicly named, shamed and outed as they should be. These two insurance companies should be publicly named.
Why is all of this stuff now coming out now within days of Kelly O’Dwyer trying to rush through the LIF which will only worsen the issues of direct business, underinsurance and higher denied claims after advisers are unable to afford to stay in the business.
This whole LIF is a con at the highest levels
Wow. How many families have been impacted by these insurers (safely anonymous, ha) unethical and un-Australian policies? As for punitive measures, well no they just simply have to cease offering conflicting incentive structures. What a weak handling from ASIC. Don’t make a simple mistake in your SoA’s though, that will get you named and shamed.
I hope they are looking at Industry Funds as well. I battled for more than 12 months to get an income protection claim through for a client. It was declined twice and the client would have given up if not for my insistance. I have heard stories about conflicted arrangements with industry funds and it makes my blood boil. Are they looking at this? Or have these funds become so big and so intertwined with the Labor party, that ASIC are too scared to investigate them in the same way they investigate financial planners and the banks?
Why can’t the 2 insurers be named????? It seems Planners who do the wrong thing can be named. Why not so in this case???????
I feel the victims of this should be entitled to have their claims reopened. Also should the advisers who recommended these policies in good faith, to only have their reputation insulted be compensated?
The public and the industry have a right to know which insurers were offering these disgraceful incentives to their staff. It is most probably insurers who focus on direct sales, however, once again the professional adviser will cop a beating in the press over this. Come on AFA and FPA – stand up for the quality advice the majority of advisers provide to their clients.
Whaat so the insurers involved have made sure this will stop!! What about the clients who had their claims knocked back? I have had two claims knocked back in the last year! Are these claims with this particular company? I don’t know BUT I can guess!!
Name the Insurers! It will only have an impact on their businesses when they are named and called out on their behaviour. When a Financial Planner breaches his obligations, or is found to have conflicted remuneration, they are named and banned publicly so consumers are fully aware.
So will there be a review to ascertain if the declined claims will be looked at again, bearing in mind this article?