Fairness 'above policy wording'

Insurers must better consider fairness, ASIC senior manager Emma Curtis told the AILA conference.

"Even if policy terms are explicit sometimes it might be fair" to pay a claim. While the life industry was a major focus, the same principles applied to general insurance. Good claims handling needed efficiency, fairness and transparency.

For example, an insurer had agreed to make a goodwill payment after initially declining a claim for a worker who suffered a heart attack because the heart attack was caused by a workplace accident in which something had become accidentally lodged in the policyholder’s heart. That was technically not covered under the definition of heart attack.

Ms Curtis said products had to meet consumer needs and feedback from disputes incorporated into product design, development and promotion. ASIC wanted stronger regulatory and dispute resolution frameworks and stronger industry standards and practices.

It would focus on specific insurers with higher-than-average decline rates. Claim timeframes should be consistent and the new life code of practice "further developed".

ASIC wanted policy definitions reviewed. "Some policies are being sold with out-of-date definitions," Ms Curtis said.

ASIC had just released a review of claims handling procedures by life insurers, which examined 15 insurers. It found nine in 10 claims was paid, so there were no systemic issues, "but more work is needed".

The review found 47% of disputes were about evidence and delays and direct life insurance had a significantly higher decline rate. TPD policy decline rates were high and ASIC would "look further" into that.

The 15 insurers were initiating their own reviews and would report back to ASIC.

During the same session, Mark Radford, principal at Radford Lawyers, said "no matter how well drafted your policy terms are, if consumers have a perception they’re buying something else or they’re not getting good value for money, ASIC will get you".

The industry needed to share data because "if you’re not on average, [ASIC] will get you." ASIC’s corporate plan stressed culture. The regulator wanted insurers to have good quality products marketed and managed in ways that served consumers well.

 "You must get sales practices right, policy development right and keep tracking stats and performance to show you are offering something of value." But knowing consumers’ reasonable expectations was "a real grey area". "You must guess what those expectations are and design products accordingly – good luck," Mr Radford said.

"I struggle with the ‘reasonable expectations’ concept. There are obvious examples, but many grey unknowns."

ASIC’s corporate plan showed its primary focus was on corporate culture. A review of external dispute resolution schemes was in progress and insurers wanted justification for changes and no cross-subsidisation of other financial services areas.

"We want to maintain industry-specific expertise" in EDR schemes, Mr Radford said.