Death by Policy

Col Fullagar explores the seldom-mentioned stressors associated with the claims process and their potential fallout.  

Insurance is sometimes described as risk transferral.  

An individual or organisation (the insured) facing the possibility of an unacceptable event-related financial loss transfers the risk to an insurance company that in turn spreads the cost of compensation to many individuals.    

In this way, not only is “risk” transferred but also “stress”; the insured no longer need worry about the financial consequences of the insured event occurring. 

Many financial advisers who embrace the concept and value of insurance, also passionately describe it as bringing “peace of mind” to the insured. 

These same advisers might therefore be horrified to learn that the presence of the insurance so carefully put in place can ironically result in the antithesis of “peace of mind”.  

Situations exist where the claims management process has given and continues to give rise to stress for the claimant that arguably far outstrips that which would otherwise be ascribed to the financial loss itself and whilst logically the stress is greater if a benefit payment is not made; payment does not reduce prior stress. 

Some may be critical of the statement that follows but it is tragically the case that claims management stress has the potential to result in what will be referred to as “death by policy”. 

The claims management process 

A claimant entering into the claims management process rarely does so without some disadvantage such as: 

• directly or indirectly suffering from a physical or psychological illness or injury; 
• finding themselves under financial duress; and 
• being pressured by various time imperatives. 
• The claimant may be apprehensive about engaging in something about which they are unfamiliar; they may even be unsure if their claim meets the policy requirements.  

What they will need is: 

• informed, professional and timely assistance; 
• an open and transparent process; and 
• a process that is empathetic to and respectful of them and their situation. 

They may even reasonably have a right to expect nothing less as they have been paying hard-earned dollars in premiums in case this moment should arise.  

What is encountered may sometimes bear no resemblance to the above; 

• unjustified cynicism; 
• illogical requirements; 
• inexplicable delays; 
• secrecy; 
• interrogation; and 
• inexperience and bumbling. 

The assistance of a trusted financial adviser no doubt will be enthusiastically embraced and alleviate some of the initial apprehension and above problems but it may not fully protect; even the most skilled and supportive adviser has limited control over management of the claim. 

The impact on the claimant can be extreme resulting in the use of words varying from fury to fear, disdain to disbelief. 

The catalyst for this article came out of having two weekends in a row interrupted by clients making contact in various states of “meltdown” attributed by them to the actions of their insurer in managing their claims. Each was having thoughts of self-harm resulting in treating doctors being contacted. In each case, their despair was not without reason. 

These incidents are not isolated. 

The extent to which the claims management process endangers the medical wellbeing of claimants and the frequency with which it occurs is unknown; quite simply because no serious investigation has taken place. 

The fact that the claims management process can and has endangered the medical wellbeing of some claimants is an unequivocal fact supported by adviser/claimant feedback and personal experience. 

What follows are examples that appear to occur with some frequency. These examples are genuine and recent. 

Benefit payments 

There are three potentially serious stressors associated with income protection and business expenses benefit payments. The first is irregularity of payment. 

Policy documents make a clear commitment in regards to what will happen subsequent to a claim being accepted; the commitment is that benefit payments will occur with a particular frequency, usually fortnightly or monthly. 

This is an age of technical wonder so why is it that the only regularity exhibited by some insurers is the irregularity of benefit payment? 

It is not only the Federal Government that has budgetary challenges as evidenced by the following plea to the insurer from the wife of her long-term claimant husband: 

 “We have encountered further problems with his claim: 

• there is no consistency about when he receives benefit payments; 
• he was overpaid last month and he has been underpaid this month but the total of the payments is less than he should have received for the two months; 
• he has not received a payment letter in three months so there has been no explanation for this or warning that it would occur; and 
• in the past, payment letters have not detailed the calculations for CPI increases when they have been applied so I am concerned that Geoff has not been paid correctly throughout his claim.” 

The second benefit payment stressor is incorrect payments. 

Insurers design the contracts, they write the policies, it is reasonable to expect that benefit payments will be made with precision. Whilst even the best of us make mistakes, errors should be reserved for the exceptional not the mundane. 

Mundane insurer mistakes include: 

• failure to index pre-disability earnings for partial disability claims; 
• averaging post-disability earnings over a 12 month period when not provided for in the policy; and of course 
• failure to identify eligibility for a particular benefit within the policy. 

Whilst irregular and incorrect payments might be frustrating and stressful, they pale into relative insignificance when compared to the third stressor associated with benefit payments; threats of and actual benefit suspensions. 

Insurers may seek to defend these actions; however, threats of and actual suspensions should only occur as an absolute last resort and only for justifiable reasons. The following does not fall within that category: 

On 21 May the insurer arranges a factual interview. Almost a month later the claimant is advised: 

“We are not willing to make further payment until we receive the factual interview report and review further.” 

The insured in the above matter was on a partial disability claim subsequent to a “major depressive disorder” the validity of which was not in dispute.  

By August, benefit payment had still not been made.  

On 22 August, the insured suffered a “meltdown” and at 2am sent an email to the assessor, stating in part: 

“Your refusal to pay my claim on 15 March caused my bank accounts to go into overdrawn (sic) for over three weeks resulting in my bank threatening to foreclose my mortgage and I was unable to buy food, petrol, my prescription. The resultant stress and lack of medication caused me to lose my job.” 

The insurer was owned by the bank holding the mortgage.   

Benefit clawbacks 

If claims management is a core function of an insurer, it would again be reasonable to expect a minimum standard of competence. 

Competence would require that any payments made would either be validated by the information provided or, if being made on an interim basis, they would be flagged as such. 

Bearing this in mind, it is difficult to justify the following which happened to a five year partial disability claimant.  

In March 2013, the insurer suspended benefit payments whilst it undertook a “routine audit” of benefit payments via an external forensic accountant (add to above “unjustified reasons” for benefit suspension). 

On 26 July, the insurer wrote to the claimant and advised: 

“The financial analysis of your claim has revealed that there has been a significant overpayment of benefits ¨ for the entire period of your claim from 13 February 2008 to 31 March 2013.” 

The alleged overpayment totalled around $40,000; however, after taking into account accrued but unpaid benefits during the period of suspension, the insurer sent the claimant a cheque for $4500.  

The shallow justification by the insurer that “she has had the benefit of the overpayment and thus we have every right to recover” seemed even shallower because: 

• The claimant had provided the financial information requested by the insurer throughout the period of her claim; why had it not been checked as and when received such that issues could have been resolved then and there; and 
• When an independent check of the independent accountant’s audit was performed, errors were found leading to the conclusion there was in fact “no overpayment”. 
• The impact on the claimant was multi-faceted and devastating: 
• Psychologically the claimant was deeply offended when unfounded and incorrect accusations were made against her character insinuating the overpayment occurred because she “was working whilst claiming total disablement benefits”;  
• Financially the claimant’s position became precarious as her mortgage and living expenses required receipt of her full benefit entitlement not the less than 10 per cent that was eventually paid to her; and 
• Physically the claimant found the process of battling the insurer’s “arrogant and intransient position” completely exhausting. 

Intimidation 

A two-part previous Money Management article highlighted actions undertaken by insurers that might well fall within the definition of bullying. 

Similar examples might fall within the definition intimidation. 

The claim for a chronic depressive illness had been ongoing for seven years. Initially all went well but subsequent to a failed return to work, from the claimant’s perspective, the attitude of the insurer appeared to alter from assistance to assassination. 

It reached the point where the claimant felt compelled to lodge a formal complaint with the insurer’s internal dispute resolution (IDR) department. 

The detailed complaint was sent; however, rather than confirmation coming back from IDR, the claims assessor confirmed receipt and acknowledged that he would be undertaking an investigation into the matter. 

In the same email the assessor announced that an investigation into certain aspects of the claim were to be made. This involved questioning the claimant about medical matters that occurred more than 10 years earlier the details of which had been in the possession of the insurer for longer than five years. 

When asked why these questions had not been raised earlier, the insurer replied unhelpfully with the obvious double entendre: 

“I am unable to comment on why this was not raised earlier.” 

The claimant understandably felt she was being targeted for having lodged a complaint but the perceived intimidation did not end there.  

Several weeks later the assessor’s response to the complaint found that “the insurer’s conduct had been at all times reasonable, appropriate and proper”. The claimant felt gutted. 

But it still did not end as the response letter advised that another investigation was being launched, this time questioning work activities seven years earlier immediately after the claim started. 

It is again a fact that some claimants hesitate or fail to raise their voice out of concern of recriminations.  

In another recent example, an income protection claimant was paid a TPD benefit but only after a long and stressful assessment process. Whilst believing the process had been unnecessarily delayed, the claimant did not want to complain out of concern for what might happen with the income protection claim.  

She was, however, eventually persuaded to lodge a Financial Ombudsman Service (FOS)complaint for interest. The result was a Determination in her favour and an unacknowledged deposit in her account by the insurer for in excess of $30,000. 

Breach of good faith 

All parties to an insurance policy are required to deal fairly with each other. 

Good faith would be breached if an insurer used its advantage in areas such as time, finances, experience and size to disadvantage an insured. 

A recent example occurred in regard to a partial disability claim. 

The injury to the claimant’s back was severe and permanent. Not only was he suffering constant pain but he was no longer able to engage in his preferred leisure activities and his ability to work was all but gone. 

In line with the doctor’s advice; however, he attended the business of which he was a minority owner and undertook somewhat token activities simply to feel useful. 

After 5 years of partial benefit payments, the insurer decided to alter the basis of post-disability personal exertion earnings to include profit distribution by virtue of equity ownership. 

To justify its position the insurer pointed out that “personal exertion” was not defined in the policy so they had used a dictionary definition. 

The claimant responded with legal and FOS precedents to support his contention that personal exertion earnings should be related to that which he earns by way of the work he actually carried out. 

Despite repeated requests over many months for a response from the insurer, it was not forthcoming.  

The resultant frustration and stress finally led the claimant’s doctor to put the insurer on notice about the impact their conduct was having on his medical well-being. Unmoved, the insurer to this day continues to hold its position and its reliance on a dictionary definition. 

Another claimant, but with a different insurer, found herself in the same predicament when her insurer mandated that personal exertion income included: 

an ex-gratia top-up payment from her employer; and 

income received from a related business entity in which the claimant had no direct involvement. 

Uninformed intervention 

Most serious and dangerous of all the stressors; however, is uninformed intervention in the medical care of the claimant. 

In a confirmed example, an assessor was seeking to have the claimant re-examined by an insurer-appointed specialist.  

Whilst acknowledging that the previous examination had caused the claimant “distress” and the treating psychiatrist had opined that a re-examination might be detrimental to his patient’s well-being, the assessor made the position clear:  

“With respect we disagree with the psychiatrist. We note also that it is a matter for the insurer to determine what is reasonably required in order that it may properly inform its ongoing assessment of the claim. Although we have ¨ due regard to the psychiatrists observations, it is not for him to determine what is and what is not reasonably required from the insurer’s perspective to properly pursue the assessment of this ongoing claim ¨ we require that Mr B agree to attend an examination¨” 

In a yet unconfirmed example, the assessor appears to have misrepresented the view of the treating doctor in order to have a claimant suffering from a mental illness attend a factual interview arranged by the insurer.  

FSC - Standard 21 

It seems that, by virtue of the issuing of Standard 21 on 22 August 2013, the Financial Services Council (FSC) recognises the risks associated with the general administration and thus the specific of claims management. 

“The purpose of this standard is to ensure individual representatives or entities authorised by a life insurer to provide information to consumers in respect of the management of a FSC member’s life insurance products receive an appropriate level of education and training in relation to 'mental health’ awareness.  

“This standard also requires the member to review the effectiveness of the member’s Mental Health Education Program designed to ensure mental health awareness among such representatives or authorised entities.” 

Ascertaining what progress is being made by insurers in implementing this much needed training is not necessarily easy. When a claimant suffering a mental illness sought to find out if the assessor assisting him was properly trained, the response was less than helpful: 

“We appreciate (your) interest in our ongoing training and development on the issues of mental health. (Insurer) is committed and provides ongoing training to its staff in line with all legislative requirements. Unfortunately, we are not able to communicate ongoing internal matters, which are commercially sensitive in nature.” 

Strangely, the identical question asked of several other insurers brought a far more helpful and respectful response. 

Whilst the FSC should be applauded for setting up Standard 21 some might applaud more loudly and for longer if greater focus and visibility was given to implementing and promoting it rather than churning over other matters of arguably lesser import. 

Summary 

The above examples represent a very small proportion of known situations that have arisen. Space precludes mention of the impact of matters such as: 

inexplicably long delays in requesting and assessing information; 

unprofessional, erroneous and, well simply rude, correspondence being sent to claimants; and 

denial of claims in a way that is perceived to be a means of forcing the claimant into litigation rather than a reflection of the merit of the insurer’s position. 

All these and many other issues can and do increase claimant stress to medically acknowledged dangerous levels. 

The issues exist and if not acknowledged and addressed there will no doubt be serious consequences.  

If raising the subject is seen as slighting the reputation of insurers and the industry, better this than the consequences. 

Three positives to end: clearly not all claimants encounter the above problems; the majority encounter something closer to or in line with what should be reasonably expected;  

not all insurers are represented by the above examples; some appear to do it better than others; and 

certainly the presence of someone to assist the claimant, and their adviser should be an ideal “someone”, mitigates the problems. 

Col Fullagar is principal at Integrity Resolutions Pty Ltd.