Australian insurance industry probed for routine misconduct

The Australian Securities and Investments Commission (ASIC) is to urgently investigate allegations that CommInsure, the insurance arm of Commonwealth Bank, routinely denied legitimate claims from sick and dying customers, revealing a systemic practice in the insurance industry. The former chief medical officer of CommInsure, Dr Benjamin Kohn, claims the insurer would "blatantly" ask doctors to "please change it or delete assessments so that we can go to someone else to provide another opinion that's more favourable". Labour's spokesman for financial services, Jim Chalmers, says the alleged misconduct at the company demands a royal commission into the insurance industry. The Australian Government is currently considering a bill to increase regulation of the country's life insurance industry. A recent review by ASIC revealed that 37% of life insurance advice "failed to comply with the law." 

The Australian Securities and Investments Commission (Asic) will urgently examine whether allegations CommInsure may be routinely denying legitimate claims from sick and dying customers point to a systemic practice in the insurance industry.

On Monday a joint Fairfax-ABC investigation revealed that claims managers at CommInsure, the insurance arm of the Commonwealth Bank, were reportedly delaying claims to dying customers or rejecting them based on outdated, sometimes unobtainable, criteria.

CommInsure’s former chief medical officer, Dr Benjamin Koh, told the ABC the insurer would allegedly “blatantly” ask doctors to “please change it or delete [assessments] so that we can go to someone else to provide another opinion that’s more favourable”.

The assistant treasurer, Kelly O’Dwyer, said on Tuesday the stories of jilted customers were “very troubling and shocking” and would be examined by the corporate watchdog.

She said: “Asic has advised the government they are looking into the cases that have been raised and we have asked Asic for an urgent report to look at whether the practices that have been raised in the story overnight are more systemic than simply just related to CommInsure.”

A Senate inquiry into the financial advice industry, headed by the Nationals senator John Williams, was extended last week to include the $44bn life insurance industry and whether companies “are engaging in unethical practices to avoid meeting claims”. O’Dwyer said it would scrutinise the cases raised on Monday’s Four Corners episode.

The Commonwealth Bank’s chief executive, Ian Narev, said he was “very saddened and very disappointed by the experiences of those customers”.

He blamed the conduct that, in one instance, saw payments repeatedly delayed to a customer with terminal leukaemia on “excessive attention paid to the detail of specific process and policies versus taking the bigger picture”.

“That has been rectified,” he said.

“But this business has 4 million customers, it pays out 22,000 claims a year … The high-level statistics of this business are that it’s doing its job.”

But he conceded: “That doesn’t help the individuals whose cases were talked about last night.”

Labor’s spokesman for financial services, Jim Chalmers, said the alleged misconduct at CommInsure demanded a royal commission into the industry.

“This is a government very quick to pull the trigger on royal commissions when it relates to the union movement,” he said. “This will be a test of whether they’re prepared to take the same kind of action when it comes to the disgraceful practices that [have been] highlighted.”

Parliament is currently considering a bill to bolster regulation of the life insurance industry, including by scaling back upfront and continuing commission payments.

The reforms are the result of an Asic review that found 37% of life insurance advice “failed to comply with the law”. With upfront commissions the rate rose to 45%.

The chief executive of Industry Super Australia, David Whiteley, told the ABC commissions created “an incentive for the adviser to make a particular sale rather than providing advice that is just in the client’s best interest”.

Calling the Senate inquiry “an important first step”, Whiteley said CommInsure’s conduct was the product of a culture that prioritised “selling product to consumers rather than looking at products which are in the interest of those consumers”.

The Commonwealth Bank apologised in July 2014 to customers who lost savings as a result of fraudulent and misleading behaviour by its financial advisers.

A parliamentary inquiry at the time said the conduct of the bank, and the failure of the regulator to rein it in, were so serious as to warrant a royal commission.

In February the bank announced a record half-year profit of $4.62bn.