If you’ve made an insurance claim in recent years, there’s a fairly reasonable chance you’ve been underpaid. According to the Australian Securities and Investments Commission (ASIC), as many as 25 per cent of claims processed by one life insurance company have been identified as underpaid.
Alarmingly, the insurer involved – AMP – is one of seven to have self-reported breaches involving the miscalculation of benefits. As a result, ASIC has now called on all insurers to review their claims payout calculation methods.
ASIC deputy chair Karen Chester is concerned about the extent of the breaches.
“Consumers need to have confidence that their insurers will calculate and pay their claims accurately,” she said. “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.”
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Of the seven who self-reported, six have completed what ASIC terms as “customer remediation programs”, ensuring claimants who were underpaid have now received their due payments.
The one outstanding institution is AMP, where one in four of more than 32,000 claimants have been identified as underpaid. AMP’s life insurance business was bought by Resolution Life in 2020, and its reconciliation and remediation process for affected customers is under way.
According to ASIC, Resolution Life has provisioned $50 million for its ongoing remediation program, providing some idea of the scale of the breaches.
How and why have so many breaches occurred?
Given some of the behaviours uncovered by the financial services royal commission, insurance policyholders could hardly be blamed for suspecting deliberate underpayment.
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However, in all seven cases revealed by ASIC, the insurers themselves reported the breaches, and some of the incorrect payments have resulted in claimants actually being overpaid.
According to ASIC, the root cause of the breaches is misinterpretation and misapplication of product rules. It has provided a list of five possible reasons for the errors:
- 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 to prevent and detect the incorrect application of product rules
- inadequate and ineffective monitoring of implemented product rules.
Regardless of the causes, Ms Chester has called on all insurers to review and remediate as soon as possible. “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,” she said.
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Apart from AMP, the other life insurers whose policyholders had been affected include Colonial’s life business (now owned by AIA), Westpac’s life business (now owned by TAL), TAL, AIA, Swiss Re and Asteron Life (now owned by TAL).
All those insurers have now completed compensation schemes, ASIC says.
Have you recently made a life insurance or income protection claim? Are you aware that you may have been underpaid? Why not share your thoughts in the comments section below?
