Almost half of claims decisions reversed after customer complaints

Life insurers reversed about 45% of claims decisions following a customer complaint, raising concerns over whether they are assessing claims properly and the adequacy of service provided to policyholders.

The figure was provided in the annual industry data and compliance report for the 2020/21 financial year by the independent Life Code Compliance Committee (LCCC).

Subscribers to the Life Insurance Code of Practice reported 1144 of the 2569 resolved complaints that related to a claim decision were settled by overturning the original outcome in favour of the customer, according to the report.

The LCCC says the rate of claims decisions being changed in favour of the customer following a complaint or request for a review suggests that subscribers have further work to do to ensure claims assessments are being appropriately and thoroughly considered in the first instance.

“For subscribers to reverse almost half of all claims decisions following a customer complaint not only suggests that their claims assessment processes may be inadequate, it also demonstrates poor customer service,” Independent Committee Chairman Jan McClelland said.

“Having a claim incorrectly declined, then being exposed to a potentially lengthy dispute resolution process, can cause severe detriment to a customer at a time when they are already vulnerable.”

The LCCC is also concerned about the extent of breaches in relation to annual policy notices to customers, who did not receive the statements in time, potentially jeopardising their insurance coverage.

More than 373,000 customers were impacted by failures in subscribers’ systems and processes for managing compliance with section 6.3 of the Code regarding annual notices in the last financial year.

The breach meant there was a potential for customers to be adversely impacted by not receiving their annual notice on time and with all the information they need.

“It could result in the customer’s policy lapsing without their knowledge or customers continuing to pay for a policy that is inappropriate or unaffordable, particularly if they are paying for the policy via a direct debit facility,” the report said.

The 2020/21 report is based on data from 24 code subscribers as of June 30 last year. All life insurers who are members of the Financial Services Council are required to adopt the Life Insurance Code of Practice.

In another key finding, subscribers were unable to improve the proportion of claims determined within the code’s timeframes despite having substantially fewer claims to assess during the period.

The number of assessed claims fell 12% to 110,488, of which 93% were accepted and 7% were declined.

Customers impacted by a breach of the code surged 197% to 429,347, with 87% of it related to policy changes and cancellation rights.

Click here to access the report.