The life insurance industry is failing to prove it can self-regulate via its two "deficient" codes, according to Maurice Blackburn Lawyers' submission to the banking Royal Commission.
There have been more than 700 breaches of the Life Insurance Code of Practice in the short time it took effect on 1 July 2017, Maurice Blackburn principal Josh Mennen said.
The law firm detailed a number of cases in its submission whereby super funds and insures breached their claims obligations and named the "main culprits" - the "worst" being AIA, CommInsure and TAL.
"The industry set itself strict timelines with respect to processing claims and responding to complaints, but as our clients' experiences show numerous insurers have completely ignored these timeframes despite being signed up to the code," Mennen said.
He denounced the industry as "all talk" when implementing the code but does little to drive better standards.
"The industry can't brush off its non-compliance with its own code as it has sought to do by calling the claim assessment time limits 'aspirational.' It must be held to account to ensure sick and injured insurance claimants are getting fair and reasonable treatment."
Meanwhile, the Insurance in Superannuation Voluntary Code of Practice is shaping up to be just as disappointing, he added, because it has no independent administrator and super fund signatories aren't required to comply with the code until 2021.
Among its other "stark deficiencies," the submission said it gives trustees discretion to opt out of any specific aspects of the code; it's not contractually binding; has no ASIC approval or oversight; and imposes no higher claims assessment standards than the Life Insurance Code of Practice.
Maurice Blackburn is urging the Royal Commission to consider that the codes have "enshrined" standard definitions, operate with clear timeframes for claims processing and set out remedies and sanctions for breaches.
Based on APRA's December 2017 life insurance statistics, annualised return on net assets stood at 10.9%, yet the penalty interest rate is about 5.58%, Mennen said, warning of insurers' "windfall" when assessing claims.
"Our submission also highlights a serious concern that insurers remain incentivised to delay claims for as long as possible - a completely unacceptable practice that happens because insurers are able to invest assets for returns that well exceed any penalty interest they have to pay on an unreasonably delayed claim," he said.