The Australian Securities and Investments Commission (ASIC) released a report in October in relation to its review of the Life Insurance industry and the way in which claims were handled within the industry.
The review focussed on life insurance claims (which includes death cover, total and permanent disability (TPD), trauma cover and income protection), their outcomes, disputes and a review of the policy documentation, staffing, internal procedures and sales practices.
With respect to TPD claims, decline rates were the highest across the board for TPD cover, followed closely by trauma cover with an average decline rate of 16%, ranging between 7% and 37%. The proportion of disputes regarding evidence required for mental health claims was significantly higher than all other disputes (51%). ASIC found that the burden on policy holders to establish their conditions to make a valid claim was challenging, particularly with respect to pre-existing conditions and non-disclosure.
Of greatest concern was the insurer's reliance on minor occasions of past history (i.e. passing comments to GPs regarding "baby blues" or attendance at a counsellor without diagnosis) resulting in claims being declined, 7, 16 or 20 years later, as well as the rejection of claims where unrelated conditions were not disclosed (cancer patient not disclosing a history of depression). ASIC also identified a trend regarding allegations of "fishing" for information about pre-existing conditions and the consideration of historical medical records that did not relate to the policy holders condition the subject of the claim.
Another major area of dispute related to policy definition, representing 37% of all disputes in TPD claims. These disputes varied, regarding either the policy holder's ability to return to work, threshold for "disablement", period away from work and the policy holder's ability to perform daily living tasks. Policy definitions on the whole were found to be inconsistent, exhaustive and technical, which led to an uncertainty for policy holders.
Of particular interest was the difference between policies containing the wording "any occupation" as opposed to "own occupation", meaning a person will either unlikely ever return to any occupation or the occupation they were performing immediately prior to the disability.
Highlighting this disparity is a recent claim in which HopgoodGanim Lawyers acted on behalf of a client in his 50s who had built up a successful consultancy business engaged in the mining industry. He was first and foremost an entrepreneur and business owner. The client had previously taken out an "own occupation" TPD policy.
The client ceased work and was ultimately diagnosed with Bipolar Disorder. The client had never previously been diagnosed with a mental illness, however he had sought counselling for periods of high stress in his previous roles. Instructions were taken from the client to provide the insurer with detailed recollections of each attendance for "counselling" and confirmation that the circumstances of previous attendance were separate and distinct from the current condition. Comprehensive explanations of past medical history identified in practitioner notes were also provided to the insurer.
The medical evidence was consistent that whilst the client would not return to his role as a business owner, with time and additional treatment, the client may be able to return to the mining industry in some capacity either on a full time or part time basis. It was this potential to return to "some form of work" that prompted the insurer to initially indicate that the claim would be declined due to the client being able to return in some capacity to the mining industry.
With detailed instructions from the client, HopgoodGanim were able to:
- Confirm the policy related to an "own occupation" definition, opposed to the "any occupation" definition;
- Appropriately identify the extensive duties that his role encompassed; and
- Confirm the medical evidence supported the acceptance of the TPD claim on the basis of the definitions in the policy.
Ultimately, the client's TPD claim was accepted by the insurer.
Take away points
- The ASIC review highlighted significant shortcomings with the management of life insurance claims;
- Further investigation will be undertaken by ASIC including targeted follow up of individual insurers with high decline and dispute rates;
- Mental health claims, while challenging, are best met with detailed disclosure and policy holders should seek legal advice before lodging the claim; and
- Prior to arranging life insurance it is essential the policy holder carefully considers any entitlement conditions and exclusions to coverage under the policy in consultation with a broker or their solicitor.
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