The corporate watchdog has cleared CommInsure of allegations its managers pressured doctors to deny legitimate insurance claims but admitted that industry practices fell way short of what consumers expected.
The Australian Securities and Investments Commission (ASIC) said on Thursday that the outdated medical definitions the Commonwealth Bank-owned insurer used to determine heart attack and rheumatoid arthritis, while not illegal, were “out of step with community expectations” and “had not kept up with medical opinion”.
After examining more than 60,000 documents and emails - and interviewing staff and customer and consumer representatives - along with sourcing independent medical and legal advice the regulator found that there is no legal basis for it to take enforcement action.
At a briefing, Commissioner Peter Kell revealed that he had talked to individual customers who had had "highly distressing" experiences arising from poor complaints handling but stressed this was not illegal.
“This is because the law allows the insurer to set out the cover its policy provides and to define what it means by various terms including medical terms. Under the law, it can use definitions that are out of date, as long as it clearly discloses those definitions in the policy,” he said.
“However, ASIC considers this practice falls short of what the community reasonably expects, and can result in poor outcomes for consumers.”
That said, Kell explained that CommInsure’s promotion of heart attack cover within its policies is under investigation for containing "misleading and deceptive" information before 2016.
Consequently, as a result of the ASIC probe, Comminsure has updated its medical definitions, including for heart attack and severe rheumatoid arthritis and has now voluntarily agreed to apply its updated heart attack definition back to October 2012.
Areas to improve
In its long-awaited report into allegations of deliberately denied claims, ASIC said it had identified areas where CommInsure needed to improve its claims-handling processes.
As Kell explained, the problem again for the regulator is that the alleged claims handling issues lie outside the scope of the Corporations Act.
“There are a range of areas where the claims-handling part of life insurance is either exempted from the law or treated lightly and we don't think that is justified," he said.
“Broadly speaking, the requirements of sufficiently, honestly and fairly doesn't apply to claims-handling aspect of life insurance process at this point of time, which is one reason why we are pressing so hard for law reform.”
Kell is also keen to see penalties for breaches of utmost good faith and the legal exemption for "unfair insurance contracts" to be removed. “The latter is currently being considered," he explained.
The watchdog said CommInsure needed to make improvements to its claims-handling processes, and has called on the life insurer to undertake a further independent review in mid-2018 “to provide additional assurance to ASIC and the public that CommInsure is making the necessary changes to its business”.
CommInsure has agreed to the review.
The ASIC findings follow the release of CBA’s independent review earlier this month. The Deloitte review gave the life insurance division a clean bill of health even though the review was accused of being narrowly focused with carefully crafted terms of reference geared for a positive outcome.
Interestingly, the Commissioner confirmed that ASIC and the prudential regulator both met with Deloitte on several occasions without CommInsure being present to discuss the scope of the report.