Life insurer definitions clashing: Regulators

The lack of common definitions among life insurers is making it difficult for regulators to investigate claims payout ratios and is setting back attempts to standardise definitions across the industry.

The joint project between APRA and ASIC, which compared data from 16 insurers, was said to be "difficult" as data submitted did not entirely fit the regulators' set definitions.

The regulators couldn't produce meaningful comparisons and interpretation due to a "wide range of differing systems, products and processes" from a variety of data definitions. Two insurers for example, would have different definitions for what constitutes a reported, declined or withdrawn claim.

Other problematic terms and definitions were: notified claims; passive and active withdrawals; some claims and dispute outcome categories; claim and dispute amounts paid; and processing durations.

In group insurance, there were "often inconsistencies between insurers with their interpretation of the concepts of policy contracts, policy benefits and lives insured," the report said.

Data clarity was also needed for income protection insurance or disability income insurance; reopened claims; voluntary discontinuances; and multi-benefit policies that are both inside and outside super.

During 2016, 8% of the 103,100 claims finalised (a total of 126,300 claims were reported) were declined; 6400 policyholders withdrew claims.

ASIC and APRA said it's important to note the decline and withdrawn rates are not expected to be zero - a portion of claims fall outside the policy terms and insurers can and do legitimately decline such claims.

Commenting on the findings, ASIC deputy chair Peter Kell said the analysis of this initial data reinforces the findings of ASIC's Report 498 - that over 90% of life insurance claims are paid in the first instance by insurers.

Kell flagged the importance of the project as a "significant priority" to the Parliamentary Joint Committee on Corporations and Financial Services on life insurance in October.

"There's a lot of work that needs to take place within the industry to ensure that they are categorising claims outcomes in a consistent way. Otherwise, you'll be comparing apples with oranges. Is everyone categorising claims denied, claims paid, claims withdrawn and disputes in a way that allows comparison?" he said.

Insures have until 31 January 2018 to submit data for the second round of collection, which will analyse data between January and June 2017.

Read more: ASICAPRALife insurancePeter Kell
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