On 1 January 2022, insurance claims handling and settling became regulated as a financial service under the Corporations Act 2001. This includes the obligation to handle claims efficiently, honestly and fairly. Background.

ASIC says insurers may be in breach of the obligation to handle claims efficiently, honestly and fairly if they do not accurately calculate and pay the benefits under a claim.

ASIC has called on life insurers to review the accuracy of their systems and controls for claims calculations and payments. This follows the identification of system failures resulting in the incorrect application of consumer price indexation (CPI) to life insurance policy benefits and other benefit payment errors.

ASIC says the miscalculation of policy benefits can be attributed to failures by life insurers to correctly interpret or apply product rules.

The root causes (which ASIC expects insurers to examine and rectify) may be a result of:

• complex product rules (particularly those related to indexation) that are not correctly captured and implemented in policy administration and claims processes and systems;
• inadequate staff training, particularly where complex manual processes for assessing and calculating income protection benefits are required;
• an array of inter-related and outdated ‘legacy’ technology systems, including policy administration and claims systems;
• ineffective controls in place to prevent and detect the incorrect application of product rules; and
  inadequate and ineffective monitoring of implemented product rules.

ASIC has received breach reports from seven life insurers for the miscalculation of life insurance benefits. The errors resulted in the affected customers being either under or overpaid on their claims.

The seven insurers have implemented system fixes over the last three years. They have each commenced, and six have completed, customer remediation programs.

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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.