Making the break with traditional wisdom

Traditional wisdom on life insurance has been tried but apparently has not succeeded. Col Fullagar outlines 20 insurer commitments that approved lists should be predicated on.

Part one of this article ("Breaking with traditional wisdom") suggested that the ideals detailed by the 2015 Trowbridge Report for achieving the necessary, customer-centric reforms of life insurance companies might better follow changes to the basis of licensee approved lists than by the introduction of an insurer Code of Practice.

The suggestion was that approved lists should be predicated on insurer behavioral commitments rather than the rated merit or otherwise of policy terms and conditions.

Whilst the logic supporting the proposition was aired and some housekeeping questions responded to, the detailing of actual commitments was deferred for part two of the article.

As mooted in part 1, 20 commitments will follow all of which have come out of real life situations.

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In all cases, customer dissatisfaction and disadvantage has resulted with "the customer" in this context being the life insured/policyowner and/or their financial adviser, or otherwise representative.

It is strongly suggested that, when reading these commitments, the focus should not be "Insurer's would never agree to these" but rather on the following:

If these commitments were accepted and adhered to, would the Trowbridge ideals be more likely achieved; and

Would the "reasonable person" find any of the suggested commitments unreasonable albeit they may cause insurers to stretch outside their comfort zones.

One final but important point; consider also that some insurers are already involved in practices mirroring these commitments and/or would willingly embrace any areas of differential. This group should be recognized and appropriately rewarded, as should those not in this group.

1. Reputation

The insurer, will, by its business practices and the actions of its management and staff, have and retained a reputation within the financial services industry, and the general community that would reasonably be seen by a customer as reflecting in a positive way on the licensee and its advisers.

The insurer will be seen as ethical and will treat its customers with respect.

This may sound like a platitude; be assured it is not. There are two parts to this.

If the practices of an insurer are highlighted in the media in an unsatisfactory way, this may well constitute an immediate breach leading to an approved list suspension until the particular issues are resolved and reputation restored. This is the defensive position of the criterion.

The second is subtler; customer feedback may increasingly imply that a particular insurer's practices are becoming unsatisfactory.

A licensee meeting with the insurer may ensue; concerns might be raised and an on review notice issued. This is the offensive position.

2. Risk Insurance Policies

The insurer will make available a range of risk insurance policies that facilitate sound advice and are capable of meeting the protection needs of the clients of participating licensee.

The focus of these products would be risk advice rather than risk ratings which have, arguably led to products being increasingly complex and cumbersome, and problematic to the provision of sound advice.

Going further, there may be a move to true wholesale rate products as distinct from dial down commission products. For those who doubt there is a difference, there is and it is considerable; as is being discovered by several insurers who are moving on this matter.

3. Clear Contractual Intentions

The insurer will make available policy documents and Product Disclosure Statements:

That are presented in a way that encourages perusal;

That state the position of all parties clearly and unambiguously;

That are easy to understand; and

In which qualifications and exclusions are prominently shown.

Whilst Daryl Kerrigan might claim "he's dreaming", for too long the cry of the disaffected has been "the big print giveth and the small print taketh away".

How can it be right to require insureds to sign declarations that confirm a document has been provided, read and understood when all parties know that two out of the three rarely, if ever, occur.

Arguably the most important aspect of any document is not its content but its ability to encourage perusal and, subsequent to that, to facilitate informed decisions.

4. Quality Communications

The insurer will ensure that all communications; written, verbal and electronic, with customers:

Are presented in a clear and professional way; and

Are respectful and empathetic of the customer.

Too much of the communication that comes out of corporations today, not just from insurers, would struggle to meet this criterion but this is not just about "speaking and writing proper grammar like", it is also about addressing customers in a respectful and empathetic way.

Setting this goal may see the end of clumsy form letters and worse still, blunt instrument documents such as terminal illness claim forms that brutally confront the insured with their reality of pending demise.

It may also see the end of disrespectful insurer responses such as: "Your claim is being reviewed by management and other stakeholders". Customers deserve to be reassured their future is in the hands of real people not no-name entities.

Respect is proactive, anticipating a need rather than waiting for a question to be asked; respect goes the extra 1,609.34 metres to ensure the customer feels valued.

5. Response to questions

The insurer will respond to reasonable questions asked by customers in an equivalent way to quality communications above.

An insurer's failure to acknowledge and respond to reasonable questions asked by a customer is to send a message that, both the questions asked and the customer, have no standing. This fundamental issue is arguably the most frequent complaint offered up.

6. Service Standards

The insurer will publish and adhere to best practice service standards in the primary areas of its dealings with customers including new business, general administration, and claims management.

Requiring insurers to publish and adhere to best practice service standards — outrageous!!

Yet, this might lead to adviser recommendations including service standards and adherence percentages.

Having some reasonable certainty of response means that questions such as "when will you be able to get back to me?" will no longer be necessary, and responses such as "I will try to get back to you with an update by this time next week" will no longer be tolerated.

7. Information Access

The insurer will provide access to information obtained during the underwriting and/or claims management process as and when it is obtained, subject to provision of the necessary authority.

The insurer will have due consideration to relevant regulation and legislation; however, any reliance on available exemptions will be communicated in an equivalent way to quality communications above.

The insurer's actions in regards to information access will epitomise open communication.

Those who wish to play secret squirrels and act like power moguls will not be missed. Sharing of information is about creating an even playing field.

To ensure reasonable protection for the insurer, an appropriate exemption would be included if there were reasonable grounds to suspect customer breaches in the areas of disclosure and good faith; however, "if such an exemption is implemented, advice on a confidential basis will be provided to the applicable participating licensee".

8. Reasons for decision

The insurer will, when communicating an underwriting or claim assessment decision other than acceptance, provide the reasons for the decision in an equivalent way to quality communications above, including the provision of any relevant sections of underwriting guidelines relied upon.

An unknown but likely considerable number, of disputes arise because the customer is unaware of the basis for an insurer's decision.

Customers should be treated in an adult way and reflective of this, the insurer should, embrace open discussion, including explaining reasons for a decision. If the reasons do not stand up to scrutiny, possibly the decision does not either.

9. Claim Requirements

The insurer will, when requesting claim requirements, provide reasons for and detail the relevance of those requirements in an equivalent way to quality communications above.

The insurer will, when obtaining claim information from a third party:

Ensure that any authority used was signed within 12 months of the information being requested; and

If requested by the customer, provide details of the party from which information is being sought.

Too frequently, claim requirements are requested in a way that implies the assessor has no understanding of why they are needed. This is particularly the case when an accountant or chief marketing officer (CMO) email is cut-and-pasted into the assessor's email.

A requirement request should be accompanied by an explanation of why it is needed and how it will be used. A statement of "the policy document allows us to obtain whatever information we need to assess the claim" does not rate.

10. Resolution Process

The insurer will, in any area of disagreement with a customer, proactively engage in discussions with the customer until it is agreed by both parties that no further progress can be made despite the best efforts of both parties.

Discussions may involve face-to-face meetings at the request of the customer.

The insurer will not unilaterally treat a matter as a complaint.

The genesis of many complaints is the reticence of an insurer to demonstrate openness, transparency and accountability; apparently preferring to send a customer to an ombudsman rather than engage in a respectful, even if robust, discussion.

The provision of additional information together with a request to review a decision, does not necessarily constitute a complaint. When review requests are unilaterally logged as a complaint and turnaround times go from four-to-five days to 45 days — the statutory period allowed.

11. Independent medical examinations (IMEs) and factual interviews

The insurer will, in respect of IMEs and factual interviews:

Provide the customer with the opportunity to suggest dates and times for the appointment;

Proactively encourage the attendance of a support person of the customer's choice — setting of standards of conduct by the examiner during the IME are acceptable and are to be similarly encouraged;

Provide the customer with a copy of the curriculum vitae of the person conducting the examination or interview;

Provide an opportunity for formal feedback on the examiner or interview; and

Make available a copy of the examination or interview report and briefing letter as and when the report is obtained by the insurer.

If possible, in respect of an IME, a choice of examiners will be provided.

The insurer will seek and take into account input from treating practitioners in regards to any and all IME's undertaken.

In respect of a factual interview, details of matters to be covered in the interview will be provided to the customer in advance of the interview.

The insurer will, in respect of the use of surveillance publish its standards for selection of investigation organisations and ensure that investigators undertake appropriate police checks.

Independent medical examinations can be physically and psychologically challenging and thus the need for criteria that revolve around respect and empathy — there's those pesky words again.

If an insured is going to be prodded, poked, and interrogated (all from their perspective) by someone they have never met before (a.k.a. the examiner) maybe, just maybe, the insured might feel a little more comfortable if they knew something about the person; their background and qualifications i.e. by way of provision of the examiner's curriculum vitae.

The attendance of a support person reduces the risk of "he said, she said" discrepancies in the examination reporting as well as ensuring that the examinee is better able to focus on the examination, knowing that someone is available to assist them if needed.

To ensure the examiner's position is also respected, it is imperative that appropriate support person standards of conduct are detailed and adhered to.

12. Reinsurance Arrangements

The insurer will provide participating licensees (on a confidential basis if necessary) the following information in regards to risk insurance reinsurance arrangements:

Levels of retention for each risk insurance type; and

Details of reinsurers for each risk insurance type.

Insurance is largely predicated on the sharing of risk.

Whilst an adviser may recommend the full amount of cover be placed with one insurer; another may choose to spread the risk across both insurers and reinsurers, recognising that rumours exist that a claim under one very large policy can be more difficult to have processed and accepted, and more likely to be contested than several smaller ones.

The concern about multiple insurers leading to a duplication of requirements at the time of a claim is already mitigated by some advisers who designate a member of their support staff to undertake a project management role in the claim; co-ordinating, obtaining and distributing as necessary requirements to the insurers involved.

13. Underwriting and Claims Flexibility

An insurer will demonstrate prudent flexibility in underwriting and claims decisions and requirements.

The key words are "prudent flexibility" — the insurer should be enabled to make an underwriting profit but the customer should be given every opportunity to obtain insurance protection and, if necessary, lodge a successful claim under it.

14. Premium Accountability

An insurer will proactively provide a participating licensee or its designated representative with information that would enable any general premium rate change to be assessed. It is acceptable that this access be provided on a confidential basis.

This is not about accessing an insurer's confidential pricing assumptions; this is about enabling the basis of advice in part to be predicated on the fact that "with the insurer whose products I am recommending, if there is ever a premium rate change, our licensee will be given access to the pricing actuary. Questions can be asked and answered so we can understand the background to the change, whether the cause has been identified and addressed."

This goes to the core of making informed decisions about an insurer's premium rate sustainability.

15. Correction of Errors

An insurer will, if errors are found either by the insurer or the customer, that materially and adversely affect customers, implement remedial actions to ensure present and past customers are not financially disadvantaged.

Errors of policy interpretation and in the calculation of claim benefits are not unknown.

This criterion reflects the essence of the insurer's duty to act in good faith i.e. if a mistake is discovered and it can be identified as having occurred previously, there should be a commitment to correct the matter for all affected parties.

16. Transfer Terms

An insurer will, when withdrawing an insurance product and replacing it with a new insurance product of the same type, ensure that existing customers are provided with a reasonable opportunity to transfer on a non-underwritten basis to the new product.

The above is subject to the new policy being issued on the same underwritten basis as that which previously applied and the customer being willing to pay the premium for the new product and/or exclusions applying in regards to any material additional benefits included in the new product.

Loyalty, far from being rewarded, can lead to an insured being treated in a prejudicial way; their policy becomes a legacy contract exposed to claims experience rate rises in excess of that applying to an open product.

17. Benefit Commutation

An insurer will, if offering or agreeing to offer a commuted income protection insurance benefit payment by way of a policy buyout, provide details of the calculation assumptions such that an informed decision to accept or reject the offer can be made.

In the absence of a commutation right built into the policy, an insurer is not obliged to offer this facility to a customer; however, this does not preclude the matter being raised by either party and subsequently pursued.

To again ensure an even field and the facilitating of an informed decision, reasonable protocols should be followed.

Irrespective of whether agreement is reached, the process should be professional and (that word again) respectful.

18. Cost Reimbursement

An insurer will reimburse customers for reasonable costs incurred in resolving a dispute concerning an error if:

The insurer agrees it was solely responsible for the error; and

The insurer agrees to costs prior to them being incurred.

The insurer will not unreasonably withhold agreement.

No other criterion is likely to give rise to insurer pushback to the same extent as this, yet in what way is it not fair and reasonable whilst containing of considerable protection for the insurer.

In response to an insurer bleat on the basis of cost impact, the question might be floated: "If the cost impact incurred for mistakes made has a material and detrimental impact on the insurer's bottom line, the issue is the quantum of mistakes rather than the quantum of costs?"

19. Referral to Financial Ombudsman Service (FOS) and Superannuation Complaints Tribunal (SCT)

An insurer will, if responding to a matter referred to FOS or the SCT, use and not add to the response provided to the customer when the matter was referred to the insurer's internal dispute resolution body except in regards to any additional matters raised by the customer.

A matter referred to an insurer's internal dispute resolutions body should be treated seriously and given due attention such that the full extent of the insurer's position can be adjudged. To this end, the criterion above applies such that, if a resolution cannot be reached, the customer can make an informed decision about an external escalation.

20. Maintenance of Statistics

An insurer will retain and publish statistics of matters that are referred to internal and external dispute resolution and the proportion of each that are decided in the customer's favour.

Transparency and credibility are often indelibly linked.

If every matter referred to an insurer's internal dispute resolutions body was ruled in favour of the insurer, there would be little apparent purpose in so referring a matter and, additionally, this statistical imbalance may well be perceived as going to the matter of insurer credibility.

On the opposite spectrum, if every matter referred to an external dispute resolution body was judged against the insurer, this also may be seen to speak volumes about the insurer's decision making process.

In the absence of the retention and making available of statistics in regards to the above, perception and reality may remain ships in the night.

Summary

This article began with a suggestion that the following matters would be considered:

An alternate way to achieve Trowbridge's suggested reforms for life insurance companies; and in so doing,

Similarly achieve a compelling flow on advantages for the risk insurance advice process.

In regards to both matters, skeptics may ask "is it possible that what is suggested would work?" with the response being "yes — based on the feedback of advisers with whom the strategy has been shared and also on those who already have an approved list predicated on what is suggested".

Like it and agree with or not, the industry has labored under the burden of poor perception for many years with the focus increasing of late. Traditional wisdom has been tried but apparently not succeeded.

Perhaps it is time to break with tradition but on an informed basis!

Col Fullagar is the principal at Integrity Resolutions.