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A leading insurance lawyer has described the Life Insurance Industry Code of Practice as a missed opportunity to fix serious systemic problems in the industry.

Slater and Gordon Insurance and Superannuation National Practice Group Leader, Andrew Weinmann, said the final Code was an improvement on the Code status quo, but did not go far enough.

“The life insurance industry has a number of serious systemic problems and this was a good opportunity to fix those problems,” Mr Weinmann said.

“While some aspects of the final Code are an improvement on the status quo, having considered the Code, we must conclude that on the whole it is disappointing.

“The Code has many loopholes, exceptions and carve-outs and does not place enough clear and hard obligations on insurers.

“It falls short of reasonable community expectations about how insurers should behave.”

In its submission on the Code, Slater and Gordon identified the following key areas of concern:

  • Long delays in the approval or rejection of claims.
  • Unfair treatment of claimants during the claims assessment process, including problems with communication, surveillance and interrogations.
  • Irregular payment of income protection insurance payments, including cutting off regular payments on the basis that ‘further investigations’ are required.
  • Churning of unnecessary changes from one insurer to another, which can cause problems with pre-existing conditions and disclosure.
  • Useless, mis-sold and overpriced policies.
  • Commissions and the conflicts of interest that they create.

Time limits for insurers to make decision

Mr Weinmann said the Code requires insurers to make decisions on income protection claims within two months of the end of the waiting period, and decisions on total and permanent disability claims within six months of the end of the waiting period.

“We believe the timeframes should be 45 days for income protection claims and three months for total and permanent disability claims.

“We are also concerned that the Code states that the timeframes do not apply to ‘unexpected circumstances’ - a term that is so broadly defined that we believe that insurers will be able to avoid the time limits in the majority of cases.”

Mr Weinmann said an analysis of hundreds of disability insurance claims Slater and Gordon won for clients during the 2015 financial year revealed an unacceptable level of delay.

“Only around half of all of these claims were approved with six months of being lodged.

“People making total and permanent disability and income protection claims are very unlikely to be working and many of them will have no income. Delaying their claims can lead to severe financial hardship and mental illness.”

Payments suspended

Mr Weinmann said that the Code takes some steps to address problems with approved income protection payments not being made on time or being cut off without immediate explanation, but again did not go far enough.

“The Code allows payments to be delayed, as long as the insurer gives an explanation for the delay, but does not stop payments being cut off before an explanation is given.”

Rules on interrogations, surveillance and medical examinations

Mr Weinmann said the Code provides some rules about interrogations, surveillance, and medical examinations, but does not properly protect claimants.

“Claimants can still be subjected to stressful and intrusive face-to-face interrogations, even those who are suffering mental illness.

“The Code continues to refer to doctors chosen and paid for by the insurer as being independent and, in some cases, forces a claimant to allow an assessor to come into their homes.”

Claims management

Mr Weinmann said the Code had also not adequately addressed issues with how claims are managed.

“The Code does not require an insurer to give an email address or phone number for the claims assessor. In our experience, many insurers and superannuation funds refuse to provide direct contact details for the claim assessor, causing unnecessary delays. It is not uncommon to be kept on hold for longer than half an hour before being transferred to a voicemail.”

Legal effect of the new Code

“The Code is not legally binding. That means it will not provide protection to consumers when they need it most, when push comes to shove.”

Applicability in superannuation

“Most Australians get life and disability insurance through their superannuation. Super funds play a big role in handling claims. The Code is not binding on superannuation funds, but needs to be to provide comprehensive protection to insurance consumers,” Mr Weinmann said.

Slater and Gordon life insurance clients are available to speak to the media on request.

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