ASIC asks life insurers to review accuracy of their systems after pinpointing failures

The corporate regulator has asked life insurers to review the accuracy of their systems and controls for claims calculations and payments, following the identification of system failures resulting in the incorrect application of consumer price indexation (CPI) to life insurance policy benefits and other benefit payment errors.

In a statement on Monday, ASIC said it has received breach reports from seven life insurers for the miscalculation of life insurance benefits, which resulted in the affected customers being either under or overpaid on their claims.

The seven insurers have implemented system fixes over the last three years, ASIC said, while each has also commenced, and six have completed, customer remediation programs.

Resolution Life (previously AMP Life Limited) has provisioned $50 million for its ongoing remediation program, with the insurer said to be currently reconciling over 32,000 claims files to identify those that have been underpaid to customers.

As such, ASIC now wants to see all life insurers review the effectiveness of their systems and controls for claims calculations and payments, to ensure that all consumers receive the product benefits and features they are promised.

“Consumers need to have confidence that their insurers will calculate and pay their claims accurately. 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,” said ASIC deputy chair, Karen Chester.

“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.”

The life insurers that have undertaken remediation in the last three years due to claims calculation and payment issues, include AIA Australia, Asteron Life & Superannuation (now TAL), Resolution Life, Swiss Re Life & Health Australia, TAL Life, The Colonial Mutual Life Assurance Society (now AIA), and Westpac Life Insurance Services (now TAL).

Under the life insurers’ remediation programs, claims were recalculated and remediation payments (including interest) were made to customers who were underpaid on their claims. Where customers were overpaid, they were not required to repay.

The regulator explained that the miscalculation of policy benefits can be attributed to failures by life insurers to correctly interpret or apply product rules. The root causes, it said, may be a result of complex product rules, inadequate staff training, an array of interrelated and outdated ‘legacy’ technology systems, and inadequate and ineffective monitoring of implemented product rules.