Financial services regulator ASIC has called on life insurers to uplift their claims and payments handling systems, with the watchdog naming seven life insurers that were found, over the last three years, to have miscalculated life insurance benefits.
The regulator flagged several causes for the miscalculations, including complex product rules (particularly related to indexation) that were incorrectly applied in policy administration as well as claims processes and systems, inadequate staff training, outdated ‘legacy’ technology systems, and ineffective controls to prevent and detect the incorrect application of product rules.
Among the seven life insurers that self-reported calculation errors, ultimately breaching their own product rules, include AIA Australia, Asteron Life & Superannuation (now owned by TAL), Resolution Life, Swiss Re Life & Health Australia, TAL Life Limited, The Colonial Mutual Life Assurance Society (now owned by AIA), and Westpac Life Insurance Services Limited (now owned by TAL).
ASIC confirmed that all seven insurers have implemented system fixes over the last three years to avoid further breaches of product rules, with each having commenced – and with six having already completed – customer remediation programs.
Resolution Life (previously AMP Life Limited), for instance, provisioned $50 million for its ongoing remediation program following its rule breach. ASIC confirmed the insurer is currently reconciling over 32,000 claims files to identify those that have been underpaid to customers.
Under the remediation programs, the life insurers were required to re-calculate claims and remediate payments (including interest) to customers who were underpaid on their claim. Customers that were overpaid were not required to repay.
“Consumers need to have confidence that their insurers will calculate and pay their claims accurately,” ASIC deputy chair Karen Chester 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.”
Chester added: “If it does, 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.”
ASIC notes that on 1 January 2022, insurance claims handling and settling became regulated as a financial service under the Corporations Act 2001. This includes the obligation to handle claims efficiently, honestly and fairly – with insurers warned they may be in breach if they fail to meet these obligations.