The latest ASIC report released this week into claims handling practices in the life insurance industry has found no evidence of “systemic misconduct” in handling claims, but identified several areas of “significant shortcomings”. The review also found that claims were rejected at an alarmingly higher rate when the insurance was sold directly to consumers without financial advice.

It’s been a big week in the world of life insurance with the release of an Australian Securities and Investments Commission (ASIC) report on claims handling practices in the life insurance industry and the Financial Services Council (FSC) releasing a code outlining how their members – including registered life insurers, behave in their direct dealings with consumers.

In investigating claims and dispute processes, ASIC looked at 15 different insurers, covering around 90% of the market. ASIC said that while it found no evidence of systemic misconduct and that 90% of claims were paid in the first instance, it did identify a number of areas of concern. Across the industry ASIC found claims were declined for 4% of life insurance cases; 7% of income protection; 14% of trauma and 16% of TPD (Temporary and Permanent Disability) cases. More worryingly, ASIC identified 3 insurers that had significantly higher denial rates of TPD claims with one in particular denying 37% of all TPD claims. The investigation also found that a massive conflict of interest was apparent with some insurance companies linking staff bonuses with claim denial rates.

Significantly, ASIC found that there were high rates of rejected claims when insurance was sold directly to consumers, without financial advice. Insurance is marketed and sold directly to consumers by insurance providers and online sites.

The situation also provides a timely reminder as to one of the most sifnignificant benefits of working with an adviser. As a adviser, we regularly consult with the insurance providers to obtain a deeper understanding of how they are advancing definitions and their decision process when upgrading policies. At every client review we consider the appropriateness of the insurer, their definitions and how the insurer’s claims management process is administered and resourced. This is the best way to ensure that our clients opportunity to get paid their claims is maximised.

At this stage ASIC has refused to name these companies, or the insurers with higher denial rates data was but we are pretty certain as to who they are and we camn reassure you we don’t deal with these providers!

In a nut shell why risk not using an adviser to deal with your risk insurances?

“In preparing in this article we have not taken into account any particular persons objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.”