The Parliamentary Joint Committee on Corporations and Financials Services has recommended substantial changes to the life insurance sector to promote greater transparency and protect consumer rights.
Living in the Present
A litany of scandals in the life insurance sector such as Commonwealth Bank’s CommInsure scandal, has created a sense of distrust and wariness amongst consumers.
Kickbacks and commissions are still being provided to advisers who sell life insurance, even though such ‘perks’ have been banned in other areas of financial services. Although caps were introduced in parliamentary legislation last year, insurance companies have found workarounds such as paying advisers “education and training” fees. These hidden payments have created conflicts of interest and increased chances for corruption.
The backdrop of a Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry further underlines consumer dissatisfaction with the financial services industry in general.
The bipartisan committee called for updates to medical definitions, greater legal protection for consumers, and stricter access to medical records by insurers. It emphasised the importance of transparency in remuneration arrangements to ensure corruption is minimised.
Some key recommendations include:
The committee recommended a review of broad-based exemptions, which allowed insurers to knock-back death claims. For example, the exemption relating to alcohol has allowed insurers to deny claims on the basis that the person had alcohol in their blood when they died, even if it was an insignificant amount or did not contribute to the death.
Banking Executive Accountability Regime (BEAR)
A recommendation was also made to include the life insurance sector into BEAR. The regime provides clarity on the responsibility and accountability obligations of financial institutions and gives additional powers to the Australian Prudential Regulation Authority (APRA) to conduct investigations.
The committee advised that there should be mandatory updates to medical definitions. In the CommInsure scandal mentioned above, insurers had relied on out-of-date medical definitions to reject claims. The committee states that the definitions should “align with current medical knowledge and research”.
“Group” Life Insurance
Another key concern was in the area of superannuation, where the committee detailed ‘automatic’ life insurance. Bundled with their super, the inquiry found that many consumers did not know they had been paying for the default life cover. It urged APRA to audit superannuation trustees to find any default insurance payments.
Mental Health Treatment
The report also found that many patients would avoid getting treatment for their mental health problems in fear that this would negatively affect their insurance rates or that their claim would be knocked back. Doctors were “forced” to provide information that could sometimes negatively impact the patient’s insurance claims. The committee called for stricter regulations regarding sharing patient information.
The joint committee recommended consumer protections for financial and non-financial sectors be coordinated, criticising the sector as having “grossly inadequate” consumer rights.
Have you had any frustrations when dealing with life insurance companies? Do you think these recommendations would help? Let us know your thoughts by tagging us #lawpath or @lawpath.