ASIC is calling on life insurers to review the accuracy of their systems and controls for claims calculations and payments. This follows identification of system failures resulting in the incorrect application of consumer price indexation (CPI) to life insurance policy benefits and other benefit payment errors.
ASIC has 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.
The seven insurers have implemented system fixes over the last three years. They have each commenced, and six have completed, customer remediation programs.
Resolution Life Australasia Limited (Resolution Life) (previously AMP Life Limited) 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. Consumers who have concerns about their income protection claim with Resolution Life should contact Resolution Life directly to check if they are affected (either by emailing IPRemediate@resolutionlife.com.au or calling 133 731).
ASIC Deputy Chair Karen Chester said, ‘Consumers need to have confidence that their insurers will calculate and pay their claims accurately. With seven life insurers now having self-reported this breach to us, we are calling on all remaining life insurers to ’review to ensure’ that this problem does not extend to them.
‘If it does, we expect life insurers to find and fix system problems and follow our remediation guidance to conduct a fair remediation and return money owed to customers in a timely way,’ added Ms Chester.
ASIC expects remaining life insurers to review the effectiveness of their systems and controls for claims calculations and payments, to ensure that all consumers receive the product benefits and features they are promised.
Insurers may be in breach of the obligation to handle claims efficiently, honestly and fairly if they do not accurately calculate and pay the benefits under a claim.
ASIC expects that life insurers will make the necessary investment in systems and controls to administer products and handle claims efficiently, honestly and fairly.
The following life insurers have undertaken remediation in the last three years due to claims calculation and payment issues:
- AIA Australia Limited
- Asteron Life & Superannuation Limited (now TAL)
- Resolution Life
- Swiss Re Life & Health Australia Ltd
- TAL Life Limited
- The Colonial Mutual Life Assurance Society Limited (now AIA)
- Westpac Life Insurance Services Limited (now TAL)
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 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:
- 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.
ASIC notes that similar issues have arisen in state and territory-based workers compensation schemes, which also involve calculation of a claimant’s income and benefits under the relevant insurance policy.
Background
On 1 January 2022, insurance claims handling and settling became regulated as a financial service under the Corporations Act 2001. This includes the obligation to handle claims efficiently, honestly and fairly.
On 19 November 2021, ASIC commenced civil penalty proceedings in the Federal Court against MLC Limited for insurance policy and service failures resulting from poor systems and controls (see 21-310MR).