Regulator cracks down on insurers’ COVID response

The corporate regulator has informed life insurers that they should be proactive in providing alternatives to consumers if they cannot pay their insurance premiums due to COVID-19 induced financial hardship.

In a letter to the directors of major insurance companies released on Monday, ASIC said it expected life insurers to go beyond provisions in the industry code of practice when dealing with consumers facing financial stress.

“ASIC expects insurers to consider, where appropriate and reasonable, reviewing options for premium ‘holidays’ or deferrals for consumers who are no longer able to pay premiums due to reduced income,” the regulator said.

“We recognise that some insurers introduced this type of flexibility in response to the tragic bushfires of summer 2019-20, and we consider a similar approach is just as important now, given the broad effect that the COVID pandemic is already having on many Australians. 

“We expect insurers to try to find workable options to allow consumers in hardship to continue their cover.”

ASIC said it might not be “fair” for insurers to wait for their customers to approach them about hardship provisions, and that life insurance companies should consider offering benefits that kicked in automatically to assist vulnerable policyholders.

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“Consumers who are struggling to pay their insurance premiums may simply allow the policy to lapse rather than contact their insurer to cancel it,” the regulator said.

“If an insurer relies on consumers to contact them to discuss options for retaining their cover, this can result in inconsistent and unfair outcomes for policyholders.

“Vulnerable consumers will be under considerable stress – accordingly, for some benefits to be effective they may need to take effect automatically, without the need for any action by the consumer.”

ASIC also said insurers should be flexible when it came to the usual requirements needed to lodge a claim, such as requiring the claimant to be assessed by a specific medical professional.

In addition, if consumers were likely to face exclusion from an insurance claim as a result of specific clauses in their policy, such as those related to a minimum number of work hours, or a broad pandemic exclusion, these needed to be clearly communicated on the insurer or the relevant super fund’s website, the regulator said.

The letter emphasised that directors would be responsible for liaising with company boards to ensure these conditions were being met.

The news comes as the major life insurers are set to be scrutinised in today’s Senate economics committee insurance hearings.

Regulator cracks down on insurers’ COVID response
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