Code of practice the only way to fix life insurance industry

27 April 2016 | CHOICE is calling for tighter rules around how insurers operate.

It's time to rein them in

CHOICE is calling on the Federal Government to make long overdue changes to the life insurance industry, to protect vulnerable consumers from unscrupulous business practices.

In the wake of the CommInsure claims scandal exposed last month by the ABC's Four Corners program and Fairfax Media, the Senate financial advice inquiry agreed to investigate the industry.

In a submission to the inquiry, made jointly with Financial Rights Legal Centre and Consumer Action Law Centre, CHOICE has recommended a number of changes aimed at improving transparency, ending commissions for salespeople and reining in the excesses of the investigators who engage high-pressure tactics and spy on their customers.

Under pressure

Insurers regularly engage in claims investigations that could kindly be described as "thorough". Customers have reported being subjected to long interviews of up to five hours, sometimes over and over again. Many also report being treated like criminals by insurance investigators, some of whom bully customers and assume the customers are making bad-faith claims.

Dilini* was ordered to attend an interview with an investigator about her income protection claim. Because her injuries had caused memory problems, she verified the date of her former company's closure beforehand. The investigator spent over an hour grilling her on this, convinced she had bought her policy knowing she was about to lose her job. By asking things like "How come you remember that but not this?", Dilini says the investigator made her feel unsure and stupid.

Placing onerous demands on customers is another frequent tactic of insurers to make customers withdraw their claims. One woman was forced to keep a diary in which she kept track of her symptoms every two hours, despite letters from her GP explaining that constantly focussing on her illness was actually making things worse.

Somebody's watching

Surveillance by insurance companies is currently regulated by a hodgepodge of state-based laws that do little to protect peoples' privacy from invasive investigators. Customers have reported being followed in the street and watched in their homes. When one claimant's son turned the tables and began following an investigator who had been tailing his dad, the investigator threatened to "kill him".

Another claimant, Nelum*, received nine DVDs from her insurer in the post, containing two years worth of surveillance footage: in her home, at the beach, dropping her son at daycare. The insurer claimed that the footage showed that she was exaggerating the severity of her chronic back pain. Regardless of the facts of the claim, the insurer had no qualms about sending people to follow her wherever she went, for months on end.

An insurer's got to have a code

CHOICE is calling for the life insurance industry to be covered by a code of practice, similar to the one that covers general insurance. A code of practice would set timeframes for the assessing of claims, prevent insurers from making unreasonable demands on customers, and set up rules for claims investigations and surveillance.

"The life insurance industry is broken, and there is an obvious way to fix it," says Erin Turner, Head of Campaigns at CHOICE. "There needs to be a code of practice for the life insurance industry. When it comes to delays in claims processing, making onerous demands on customers, and cowboy surveillance tactics, life insurance really is the Wild West."

*Not their real names.