‘Unnecessary stress for customers’: Insurers struggling with claims handling

The Life Code Compliance Committee’s (Life CCC) Life Insurance Code of Practice: Annual Industry Data and Compliance Report 2022–23 found that insurers are struggling when it comes to complaints handling.

The report analysed data collected from 16 insurers over the 2022–23 financial year, finding 12,314 reported breaches of obligations of the Life Insurance Code of Practice, representing a 9 per cent increase on the previous reporting period (11,278).

According to the report, Chapter 8 of the code, which relates to making a claim, had the most breaches with 9,149, up 18 per cent from 7,742 in the previous period. “Chapter 6: Policy changes and cancellation rights” had 1,308 breaches, down 24 per cent from 1,717, and “Chapter 5: When you buy insurance” had 1,152, down 14 per cent from 1,339.

Noting the increase in breaches related to claims handling obligations, Life CCC chair Jan McClelland expressed concern and the need for significant improvement in this area.

“Failing to address claims promptly not only breaches code obligations but also adds unnecessary stress for customers, undermining trust in the industry,” she said.

“Life insurers must prioritise meeting claims handling and communication timeframes to improve customer satisfaction and meet community expectations.”

The report further found that, although trending downward, human-related error was overwhelmingly the cause of breaches with 79 per cent attributed to it in the 2022–23 period, down from 80 per cent in 2021–22, and 92 per cent in 2020–21.

Causing further concern, the report found a 53 per cent increase in complaints regarding insurers with 75,246 in the 2022–23 period, making it the highest number in a six-year upward trend.

Complaints regarding “death”-related insurance products reported the highest number of complaints with 15,972, up 93 per cent on 2021–22, which saw 8,274. Consumer credit insurance products, however, saw the steepest increase at 119 per cent, jumping from 5,207 in 2021–22 to 11,422 in 2022–23.

Four insurers reported fewer than 10 breaches in the 2022–23 reporting period. In the previous reporting period, three of the same four insurers also reported fewer than 10 breaches for the year.

Although this could be seen as positive, the report said: “Consistently reporting no breaches or very few breaches over extended periods raises concerns that an insurer may not have adequate systems in place to identify, record and report breaches.”

McClelland added: “We expect life insurers to take proactive steps to improve compliance and safeguard consumer trust.”

The report also found that although the number of customers being impacted by breaches has decreased, the total number of breaches increased.

According to the report, the FY22–23 breaches impacted 106,266 customers, including single customers impacted multiple times in a breach, down from 199,720 in the FY21–22, and a significant reduction from the 429,347 in FY20–21.

Speaking on the changes seen in this reporting period, McClelland expressed cautious optimism while highlighting the need for further improvement within the industry.

“It is encouraging to see a decrease in the number of customers impacted by breaches for the second year in a row. This indicates we are making headway in delivering better outcomes for consumers,” she said.

“Unfortunately, this positive trend is offset by an overall increase in breaches for the 2022–23 period. This marks the third consecutive year of rising breaches, signalling that there is still much work to be done.”

Over the 2022–23 reporting period, Life CCC found that 10 out of 16 insurers saw an increase in breaches, while four insurers accounted for 90 per cent of all breaches.