Life insurance reforms proposed to provide better rehabilitation and early intervention treatment have been scrapped by the Federal Government.
In response to the Parliamentary Joint Committee on Corporations and Financial Services' report released yesterday, the Financial Services Council said it was "deeply disappointed" the changes it was backing have been rejected.
It means the current rules prevent life insurers from providing payments for treatment to Australians at risk of long-term incapacity where they are not covered by private health insurance, the FSC said in a statement.
"The industry proposed early intervention will allow insurers to fund a range of treatments to help sick and injured people return to wellness sooner," FSC chief executive Sally Loane said.
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The PJC has instead focused on "cultural issues within the life insurance industry" rather than considering consumers who need help, Loane added.
As a solution, the committee recommended that ASIC undertake a thorough investigation of how in-house rehabilitation services in the life insurance industry operates.
This was on the basis the committee was more concerned about the "use of discretionary services in the life insurance industry that are outside contracts, disclosure and therefore relevant consumer protections."
"While the committee has heard about such approaches being used for non-medical rehabilitation and the FSC's proposal for medical rehabilitation, the committee is concerned about how widespread this practice is," it said.
Ultimately, life insurers should be required to disclose all of its discretionary, off-contract arrangements and that these arrangements be examined by ASIC, the committee proposed.
One FSC proposal was to enable life insurers to provide medical rehabilitation assistance regardless of whether the policyholder's injury is related to work, and if so, workers compensation schemes may apply.
Maurice Blackburn countered this proposal in its submission, stating it would inadvertently set up two systems: the current workers compensation scheme that's subject to various regulations; and a parallel scheme whereby private sector insurers determine the worthiness of claims and the processes and conditions for return to work, the report said.
The industry accepts the fact that there are a range of issues it must address, Loane said.
"We are working to confront these problems - but the FSC believes that the PJC has not given due consideration to early intervention on its own merit," she said.
AIA Australia and New Zealand chief executive Damien Mu said while the report recognises the important role of early intervention and rehabilitation in improving health and recovery outcomes for individuals, the PJC has concerns with how insurance companies would conduct practices in assessing the true merits of the proposals.
Mu added it's "paramount" for the industry to address these concerns and develop processes, including appropriate oversight as insurers have an important role to play in early intervention and rehabilitation.
"This is a priority which we will commence immediately," he said.
"This starts by welcoming involvement from ASIC and having an open-door policy to build greater trust and goodwill in the industry, and to help demonstrate the unquestionably positive results early intervention and rehabilitation programs are having for all Australians."
This article was updated on October 29.