ASIC tells life insurers to review systems after thousands underpaid – Sydney Morning Herald

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The corporate watchdog is telling life insurers to review their systems for paying out claims, after past failures led to thousands of people being underpaid benefits, sparking a series of compensation schemes.
The Australian Securities and Investments Commission (ASIC) says that in the past three years, seven different life insurance businesses have self-reported breaches involving the miscalculation of benefits, especially for income protection policies.
ASIC deputy chair Karen Chester: “Consumers need to have confidence that their insurers will calculate and pay their claims accurately.”Credit:Oscar Colman
Six of these insurers have completed compensation schemes in the past three years, while global group Resolution Life, which bought AMP’s life insurance business in 2020, is part of the way through a long-running refund program that involves sifting through more than 30,000 customer files. Resolution has provisioned $50 million for the compensation scheme, ASIC said.
The watchdog, which gained extra powers to police claims handling following the Hayne royal commission, is urging the rest of the industry to review the systems used to calculate benefits, amid concerns the problem is even more widespread.
ASIC will on Monday tell Resolution customers to contact the insurer if they have concerns about their income protection claim, and it will publicly call on the industry to review the systems they use to calculate payouts.
In a statement, ASIC deputy chair Karen Chester said that if insurers found problems with their payouts, the regulator expected them to find and fix the issues.
“Consumers need to have confidence that their insurers will calculate and pay their claims accurately. 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 said.
ASIC said it had identified “system failures” in the industry that resulted in the consumer price index being wrongly applied to payouts, leading some to be underpaid while others were overpaid. The problem has most commonly occurred with income protection policies, which pay people who are sick or injured a regular income, which may need to increase with inflation.
Resolution said AMP had first identified the issues in 2018, and the issue was reported to ASIC and the Australian Prudential Regulation Authority in 2019. Resolution said in a statement it expected to pay compensation on about one in four of the 33,000 claims it was reviewing.
“It is anticipated that around 25 per cent of these claims will require financial remediation as a result of being underpaid over the duration of their claim. We unreservedly apologise to all impacted customers for the error and any inconvenience caused,” the company said.
Australia’s major banks were previously big players in life insurance, but all have divested from the sector as part of a wider retreat from wealth management. The 2018 Hayne royal commission also highlighted misconduct in the sector, and its recommendations led to claims handling being regulated as a financial service from January this year.
Aside from Resolution, ASIC said other life insurers that had completed compensation schemes in this area included 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).
ASIC said the miscalculations were caused by complex product rules that were not always properly applied; inadequate training of staff; outdated technology and ineffective controls.
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