Life Insurance: Pay attention to the definitions

The Comminsure expose has highlighted the importance of checking the wording of your life insurance policy.

The joint Fairfax/Four Corners investigation into life insurance claims process lapses by Comminsure, the Commonwealth Bank’s insurance arm, is a timely reminder that not all policies are the same and that consumers should read the policy documents they are provided with when taking out insurance. And if you don’t understand the policy document – get advice!

The investigation has prompted a statement from Shadow Minister for Financial Services and Superannuation, Jim Chalmers, that Labor would support governemnt calls for a Royal Commission into conduct by financial institutions in relation to life insurance products.

“Labor is deeply concerned by the allegations of misconduct in the banking and insurance sectors which have come to light in recent times.

Australians have the right to expect the utmost standards of integrity in the financial industry which is the largest single sector in our economy.

If financial institutions behave inappropriately, they let down Australian consumers who depend on them and put their trust in them,” he said.

The CommInsure investigation has also prompted a widening in the terms of reference of an existing Senate inquiry. The Economics Committee’s Scrutiny of Financial Advice inquiry will now examine whether life insurance companies deliberately try to avoid meeting claims, whether a code of conduct is needed and what role ASIC does or can play in reforming the industry.

Life Insurance – definitions matter

All life insurance policies are not equal. Here are examples of both good and not-so-good definitions of three reasonably common insurance conditions.

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Heart Attack

One of the case studies highlighted on Four Corners was James Kessel, a heart attack survivor who had a trauma claim denied due to not meeting the strict heart attack definition contained in his CommInsure trauma policy.

Interestingly, CANSTAR’s research finds that CommInsure is not the only insurer to use the particular heart attack definition relied on in this case.

Here’s an example of a good and bad heart attack definition:

The good – Heart attack is covered based on one blood test and symptoms of heart attack

The bad – ECG changes PLUS blood tests with specified levels are required for a payout

Skin Cancer

Skin cancer is a very common condition in Australia – the most common form of cancer. While it’s unrealistic to expect insurance policies to pay out on any form of skin cancer there are nevertheless both good and not so good definitions contained within policy documents.

It’s also important for consumers to be aware that the vast majority of insurers will have a “premium” trauma insurance product and a “standard” trauma insurance product and that the definition of what constitutes a claimable skin cancer condition will vary between the two.

The good – Partial payments for relatively minor (squamous cell carcinoma) skin cancers + full payment for any melanoma greater than OR EQUAL TO 1mm.

The bad – All melanomas under 1.5mm are excluded. Squamous cell carcinoma excluded.

Multiple Sclerosis

Another case study highlighted in the CommInsure investigation was former CommInsure employee,  Helen Polydoropoulos, who was reportedly “ill-health retired” from the bank but who nevertheless had her TPD claim rejected.

Multiple sclerosis (MS) is an incurable disease of the central nervous system that can affect the brain, spinal cord and optic nerves. Because the effects of MS are varied and unpredictable though, it pays to carefully check the policy definition. Examples of good and not so good definitions are:

The good – Full payment on diagnosis. End of story.

The bad – Payment is only made after diagnosis and when there has been a 25% permanent impairment of “whole person function”.

It’s impractical for consumers to be expected to understand in detail – and appreciate the possible implications of – all policy conditions contained within a life insurance product. Being aware that definitions can differ though and seeking advice for any uncertainties is a great idea. Also check out CANSTAR’s general life insurance glossary of terms as a starting point.

Life Insurance: Why you need it

It’s important to realise that the CommInsure investigation is highlighting a problem with claims process and not a problem with life insurance per se. Life insurance as a product plays an important role in helping Australians protect their most valuable assets – their lives and their livelihoods.

According to CEO of the Financial Services Council, Sally Loane, the industry paid out approximately $5 billion in claims across trauma, total and permanent disability, income protection and life insurance in 2014, taking the total amount paid out in claims in the past eight years to $27 billion.

“The entire life insurance sector is currently undergoing significant change and reform which is resulting in increasing protection for consumers. Overwhelmingly, the industry plays a positive role in protecting livelihoods of millions of Australians,” she said.

CommInsure Response

In response to the investigation, CommInsure quickly announced that the Board of The Colonial Mutual Life Assurance Society Limited (CommInsure Board) had approved a range of measures to upgrade its product offering and provide further assurances.

The key measures are:

Improving the offering to customers
CommInsure has accelerated the planned upgrade of its heart attack and severe rheumatoid arthritis definitions in its Trauma product. This upgrade will be released in a product disclosure statement by the end of March but coverage will be backdated and apply for all claim events from May 2014 onwards. May 2014 was the date of the last relevant product disclosure statement for the Trauma product. CommInsure has also committed to a more regular review of the life insurance offering to ensure definitions reflect evolving medical standards and practices.

Enhancing claims process
CommInsure will introduce an additional layer of independence and assurance to its claim assessment and decision-making processes. Where CommInsure’s claims committee recommends a complex claim be declined, it will be referred to an Independent Review Panel. The Panel will consist of the Managing Director of CommInsure and at least two independent industry experts, who will be announced within the next month. A sub-committee of the CommInsure Board will monitor the outcomes of the Panel.

Reviewing claims and concerns
The CommInsure Board will appoint an independent expert to oversee a claim review program focused on declined claims, with particular emphasis on customer advocacy. The independent expert will also be specifically asked to form a view on whether the circumstances surrounding the review of any particular claim warrants further action from the CommInsure Board.
Ethical concerns that have been aired in recent media reports will be independently investigated.

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