The Australian Securities and Investments Commission (ASIC) has flagged concerns over possible claims payment issues in the life industry after seven insurers reported miscalculating benefits payouts, causing affected customers to receive less than they were entitled to in some cases. 

ASIC says it has asked the industry to review the effectiveness of systems and controls for claims calculations and payments, to ensure that all consumers receive the product benefits and features they are promised. 

The corporate regulator warns 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 after new regulations commenced at the start of the year. 

Since January 1 insurance claims handling and settling have been regulated as a financial service under the Corporations Act 2001. 

“Consumers need to have confidence that their insurers will calculate and pay their claims accurately,” Deputy Chairman Karen Chester said today in a statement. 

“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. 

“If it does, we expect life insurers to find and fix system problems and follow our remediation guidance to conduct a fair remediation and return money owed to customers in a timely way.” 

ASIC says the problems can be attributed to life insurers failing to correctly interpret or apply product rules. 

Complex product rules especially those related to indexation, inadequate staff training and ineffective controls may have led to the payment lapses. 

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

Resolution Life Australia – previously AMP Life – has provisioned $50 million for its ongoing remediation program and is currently reconciling over 32,000 claims files to identify those that have been underpaid to customers. 

The other six insurers who have undertaken remediation programs are AIA Australia, Asteron Life and Superannuation (now TAL), Swiss Re Life & Health, TAL Life, the Colonial Mutual Life Assurance Society (now AIA) and Westpac Life Insurance Services (now TAL). 

As part of the remediation measures, claims were re-calculated and payments including interest made to customers who were underpaid on their claim. Where customers were overpaid, they were not required to repay. 

“ASIC expects that life insurers will make the necessary investment in systems and controls to administer products and handle claims efficiently, honestly and fairly,” the regulator says.