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Thursday 23 March 2017

17-076MR ASIC releases findings of CommInsure investigation

ASIC has released a public report today on its investigation into the life insurance business of CommInsure (the trading name of The Colonial Mutual Life Assurance Society Limited).

ASIC has been conducting an extensive investigation and examination of CommInsure's practices, including reviewing over 60,000 documents and interviewing staff. ASIC obtained files from dispute resolution schemes, spoke to consumer advocacy organisations, and obtained independent medical and legal advice.

Key outcomes of ASIC's investigation are:

1. CommInsure had trauma policies with medical definitions that were out of date with prevailing medical practice, specifically for heart attack and severe rheumatoid arthritis. However, this was not against the law. This is because the law allows an insurer to set out the level of cover its policy provides, including out of date medical definitions as long as these are clearly disclosed in the policy. 

It is important to recognise that a consumer can end up with a life insurance policy that has out of date medical definitions in two ways (both of which we found applied to CommInsure)

  1. Insurers can sell consumers policies which already have outdated medical definitions. Although this is not against the law, it is clearly out of step with community expectations, given that consumers cannot be expected to know whether a medical definition is already outdated when they purchase life insurance. The life insurance industry has recognised this, and under the new life insurance code of practice will take steps to minimise the risk that medical definitions are out of date when policies are sold.
  2. As life insurance is a long term product, a consumer can end up  with a life insurance policy where previously current medical definitions have become out of date over time. This occurs because life insurers are legally required to maintain a consumer's cover, and cannot easily update a policy or change its terms. While this is an important consumer protection, it creates a 'legacy products' issue in the life insurance industry. The Government is considering this industry-wide issue further in response to a recommendation of the Financial System Inquiry.

2. CommInsure has since updated its medical definitions, including for heart attack and severe rheumatoid arthritis. CommInsure had previously announced that it would apply its updated heart attack definition back to May 2014. In response to ASIC’s concerns that its heart attack definition was out of date from at least October 2012, CommInsure has now voluntarily agreed to apply its updated heart attack definition back to October 2012. This is the date at which global cardiology bodies published an updated consensus on the appropriate clinical marker for heart attack. CommInsure will now commence the process of identifying affected consumers and making payments as appropriate. ASIC welcomes CommInsure’s revised position on this matter.

3. Following a thorough investigation, ASIC found no evidence to support allegations that CommInsure claims managers applied undue pressure on doctors to change or alter their medical opinions. 

4. In the course of the investigation, ASIC identified a number of areas where CommInsure needs to make improvements to its claims handling processes. Areas of improvement were also identified by Deloitte in their independent review of CommInsure's claim handling. Such improvements included, for example, better and more timely communications with consumers and enhanced training and assistance for claims managers. ASIC will work with CommInsure to make sure these improvements are implemented as quickly as possible. ASIC has requested CommInsure to undergo a further implementation review by an independent expert in mid-2018, to test the effectiveness of the changes, and provide additional assurance that CommInsure is making the necessary improvements to its business. CommInsure has agreed to this request.

5. ASIC is continuing to investigate concerns that CommInsure's advertising and promotion of life insurance policies to consumers contained potentially misleading or deceptive information in the period before March 2016. We will provide a further update on this aspect of our investigation when appropriate.

ASIC's investigation also examined CommInsure's surveillance processes and looked at whether there was any compromise of a CommInsure database. No breaches of the law were uncovered, but areas for improvement were identified, and further details of these issues are set out in the investigation report.

The investigation

As part of our investigation, ASIC:

  • obtained approximately 60,000 documents for consideration, including significant amounts of emails
  • interviewed a range of individuals, including customer representatives (financial and legal advisors, at the request of the customers)
  • conducted compulsory examinations
  • reviewed client files from CommInsure, the Financial Ombudsman Service (FOS) and the Superannuation Complaints Tribunal (SCT)
  • obtained external legal advice
  • obtained independent expert medical advice
  • engaged extensively with APRA
  • engaged extensively with CommInsure and its independent reviewers, and
  • liaised with FOS and the SCT and consumer law groups in relation to CommInsure matters to understand the issues faced by consumers.

In October 2016, ASIC released Report 498, Life insurance claims: An industry review.

Wider industry reforms to insurance claims handling

ASIC also conducted an industry wide review of life insurance claims handling with a report in October 2016 (refer: 16-347MR). A range of the concerns ASIC has identified in relation to Comminsure were also identified as industry-wide issues in ASIC's report, and there are measures being undertaken by ASIC and industry to address these issues, including better public reporting on claims outcomes.

Following ASIC's industry wide review, the Government agreed in October 2016 with ASIC's recommendation that the exemption for insurance claims handling under the Corporations Act be reviewed as well as reviewing the penalties available for miscoduct in relation to claims handling and the coverage under Unfair Contracts Terms legislation.

Consumer complaints

If consumers have any concerns about a CommInsure life insurance policy or claim, they should contact CommInsure's customer relations team on 1800 106 133 or 13 10 56.

Consumers concerned about policies and claims with other insurers should contact that insurer or their superannuation fund in the first instance.

Consumers who are not happy with the response from their insurer or superannuation fund can:

  • Complain to the Financial Ombudsman Service (FOS): FOS can accept claims up to $500,000, but can only award compensation up to $309,000. For income stream life insurance products, the monetary cap is $8,300 per month. Further information about taking a dispute to the Financial Ombudsman Service can be viewed at www.fos.org.au
  • Complain to the Superannuation Complaints Tribunal (SCT) if their life insurance is held through superannuation under a group policy: the SCT does not have a monetary limit. Further information about taking a dispute to the Superannuation Complaints Tribunal can be viewed at www.sct.gov.au
  • Seek independent legal advice and/or consult their financial adviser
  • Lodge a complaint with ASIC. Further information about making a complaint to ASIC can be viewed at http://www.asic.gov.au/about-asic/contact-us/how-to-complain/

Before consumers consider making changes to their own life, income protection and TPD insurance cover, they should carefully consider  what different conditions might apply under the new policy (such as exclusions for  pre-existing medical conditions) and also consider possible consequences of going through an  underwriting process.

ASIC's MoneySmart website has independent information about life insurance.

 

Last updated: 23/03/2017 09:20