Claims handling reality trumps perception

Mike Taylor writes that ASIC must deal in the complex realities of insurance claims handling, not the headline-making perceptions.

The Australian Securities and Investments Commission (ASIC) is keeping confidential the identity of the life/risk insurers it says have declined up to 66 per cent of claims lest it breach its commercial in confidence obligations to the companies involved.

Not to worry, ASIC chairman, Greg Medcraft, has told members of the House of Representatives Standing Committee on Economics that the regulator will privately and confidentially brief those Parliamentarians on which particular insurers have been identified as part of the ASIC review process.

If he does so, Mr Medcraft should ensure that he makes the Parliamentarians aware of the caveats which should be applied to such identification — that just as not all policy discontinuances can be classed as "churn", not all claims declinations can necessarily be equated to a claim being totally and formally declined.

What the ASIC chairman might also care to reflect upon is that, by his organisation's own admission, the claims data provided by industry participants is not consistent and that "care should be taken when making comparisons... and further work is required so that more reliable comparisons can be made".

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Such issues of detail do not, of course, make for spectacular headlines which explains why some of the major insurers spent much of mid-October seeking to explain to the media that complexities exist in the claims-handling arena which cannot be easily categorised or explained.

The response of BT Life Insurance was axiomatic of the situation created by the ASIC report and the manner in which it was reported by the daily media.

BT Life went to the trouble of writing to the media and advisers pointing out that in its case 88 per cent of claims had been paid — the second highest in the industry with the highest being 89 per cent and the industry average being 76 per cent.

"We are proud of our customer centric claims philosophy and are committed to ensuring our claims practices are fair for all of our customers. In 2015, we paid $255 million in claims, assisting 2,640 customers," the BT Life letter said.

However it then pointed to the complexity of the issue, saying that it had "also reported that our decline rate for TPD [total and permanent disability] claims is 37 per cent, declining 58 TPD claims in 2015" noting that "this statistic has been the focus of media over the weekend, with suggestions that our claims management practices are less favourable than those of other insurers".

"We believe the figures in the report should be treated with caution, as they are not comparable and are therefore potentially misleading."

As mentioned above, ASIC themselves outline issues with the data provided by insurers for comparison purposes.

"There are broad inconsistencies across the industry as to how different insurers define a ‘claim' and a ‘claim denial'. The data provided by BT includes some claims which were lodged by people who were not insured with us, or not insured at the time of their injury or illness, and some claims by customers who were paid under other parts of their policy, such as income protection and were undergoing rehabilitation activities to enable a return to work. If we took these things into consideration, like many of our competitors may have done, the figures would be much lower.

As part of ASIC's review of the industry, ASIC requested that each insurer undertake their own independent review of the claims handling practices and product management. BT commissioned an independent review by Ernst & Young (EY) for the claims handling practices of its insurer Westpac Life Insurance Services (WLIS).

This report found that "claims management and product lifecycle management processes are at the higher end of their observations of industry practice. The Westpac approach to the assessment of claims, was found to be of a very high standard and demonstrated a broad-minded, objective, good faith approach".

In short, the headlines about claim declines are not necessarily a reflection of reality and the experts in ASIC know this, even if their most senior executives do not.

While there are clearly claims-handling issues which need to be addressed in the insurance sector, ASIC needs to ensure it deals with reality rather than perception.