Australia has always been an interesting market protection business-wise. And in the past few months it has become even more interesting.
In 2016 there were some startling revelations on the ABC TV news programme Four Corners. The programme revealed a ‘disturbing culture’ at an insurer where critical illness and TPD claims were being denied. The firm’s ex-chief medical officer claimed that he was put under increasing pressure to deny claims.
The Sydney Morning Herald reported the story as follows:
‘A joint investigation between BusinessDay’s Adele Ferguson and ABC’s Four Corners this week revealed doctors in the bank being pressured to change their assessments of customers to avoid payouts; delaying payouts to terminally ill customers; and a refusal to honour claims to former staff who were medically retired.’
As a result, insurers in Australia have come under serious pressure on a number of fronts culminating in a new code of conduct. The following are some key quotes from the Financial Services Council’s Life Insurance Code of Practice:
‘Our underwriters will be appropriately skilled and trained. They will not make decisions on our behalf until they have demonstrated technical competency…’
‘Our decisions will be evidence-based, involving relevant sources of information where this is available, and having regard to any other relevant factors where no data is available and cannot be reasonably obtained. We will regularly review our underwriting decision-making process to ensure we are not relying on out-of-date or irrelevant sources of information.’
‘We will monitor our underwriters to ensure the questions asked and the decisions made are consistent, evidence-based and compliant with legislation….’
‘Where we allow you to apply for insurance via electronic underwriting, we will regularly review and monitor this to ensure the questions asked and the decisions made are consistent, compliant with legislation and regulation and we believe are necessary for us to assess your application …’
So the code is far-reaching and quite specific in what it requires from the underwriting process.
No definitions are given for what an evidence base might look like and how regularly these should be reviewed, although we hear anecdotally that the regulator will insist that ratings need an evidence base and resorting to a defence of ‘expert opinion’ may not be sufficient.
Where does this leave the Australian life insurance industry? The legislation and the code are still relatively new and so it is too early to say. Thus far, reinsurers have been asked by their clients to provide regulators with access to their manuals – what this achieves and how reinsurers respond are yet to be seen. And currently the spotlight is on travel insurers and those selling guaranteed-issue life cover – possibly these are perceived as easy targets.
More significant will be the first test case brought against an insurer (and its reinsurer), challenging a rating decision. Now arguably this is nothing special as the right to do so exists under existing human rights legislation, but the new code is high-profile and thus more likely to encourage challenges. In Australia mental health lobbyists are very active and so the first shots could come from that direction. Defending mental illness ratings might just be a tough job: there is little data available, and for disability risk data is even scarcer. And classifying the severity of cases is difficult as all underwriters know.
It will be interesting to see the results of the research that some reinsurers may now carry out on mental health topics particularly, and it is of course not beyond the realms of possibility that some ratings for these conditions may actually increase in the light of new evidence.
Having consumer interests at its core, this new legislation is clearly well intentioned. While travel insurers may appear to be first in the line of fire, the message is clear that all insurers should resist complacency about the ratings contained in their underwriting manuals and the evidence base sitting behind them. It will be interesting to see how well prepared insurers (and their reinsurers) are to ‘defend’ their rating approaches and what level of evidence is deemed to be acceptable by the regulators. Might we see the day when the only course of action for some reinsurers might be to withdraw their manual from the Australian market?
Insurers everywhere need to keep an eye on how this story unfolds. It is quite possible that such legislation will exported to other countries from the land ‘Down Under’.
And here’s a final thought. Does the need for good data to justify risk pricing mean we will see a revival of inter-company mortality and morbidity studies, the last of which was seen getting on for 40 years ago? Decent insured-life data would benefit insurers via a strong steer towards reasonable rating levels, and of course would reassure consumers and their lobbyists that the price of cover is not based on guesswork or an outdated understanding of the level of risk.
Do you come from a land down under?
Where women glow and men plunder?
Can’t you hear, can’t you hear the thunder?
You better run, you better take cover
Men at Work. ‘Down Under’ Columb Rec;1981:Business as Usual