Insurance – Code of Practice
Income protection, trauma and total and permanent disablement insurance are all extremely important ways of managing the risk that you will suffer an illness or accident such that you cannot work for a significant period or can never work again.
Given its importance, incredibly, there is not a Code of Practice that governs the way that insurance companies must act when they receive such a claim (including a claim relating to life insurance). In this regard, a particular issue is the processes that the insurer adopts in deciding whether a claim is valid. In thinking about this matter it is necessary to keep in mind that it is in the insurer’s commercial interest for it to take it as long as possible and to make it as difficult as possible to process a claim in that:
- the longer that it takes to process a claim, the longer the insurer has the use of the insured’s money – given the size of the insurance industry this is a very significant issue; and
- by making it hard to substantiate a claim some insured’s may give up on pursuing a valid claim – for example a person who has made an income protection claim might settle for less than they are entitled to to rather than embark upon a protracted process of attempting to obtain further medical evidence or having to produce voluminous information about their financial affairs.
In this context, common tactics used by insurance companies to delay claims are as follows:
- asking for medical evidence that they know will be very difficult to obtain – for example requiring the insured to get their specialist to provide answers to lengthy questionnaires about matters of marginal relevance in circumstances where the insurance company knows that this could be a very long process;
- not accepting the views of the insured’s treating doctor and instead requiring the insured to obtain information from a specialist that they may have had very little contact with and/ or to see other doctors;
- asking for voluminous financial information; and
- taking a very long time to make a decision and subjecting that decision to multiple layers of review that result in further requests for information being made, the resolution of which creates further substantial delays.
Insurance policies or a PDS never deal with issues about claims handling and the information that you are required to provide to have your claim approved – they tell the reader a lot about the benefits that will allegedly be paid (and all of the reasons as to why the insurer might be able to refuse to pay) but say nothing about the process that you will have to go through to have your claim paid out. In particular, they never say anything about how long it will take for your claim to be paid after a claim has been made. I’ve been acting for a client who had been unable to work because of a serious illness since March 2015. He made a TPD claim in April 2015 and and under the terms of the policy he was entitled to be paid out in July 2015. Instead, and only after a great deal of agitation on my part and adverse media coverage, the claim was paid out in May 2016. In the meantime, the insured has run out of money because he can’t work and he has suffered a whole extra layer of stress because of financial issues and having to liaise with the insurance company about his claim (in addition to dealing with a very serious illness).
To prevent these types of issues re-occurring there needs to be a Code of Practice put in place that sets out actual time limits and standards as to how insurance claims will be processed. Alternatively, there needs to be law reform, the outcome of which would be that insurers would have to specify (that is, make a contractual promise) in the insurance policy and/or the PDS actual criteria (as opposed to vague generalizations) as to how a claim will be processed – for example the maximum time that can elapse between a claim being made and the claim being paid out.