Published 04 Dec 2017
Nearly one in 10 people can expect crucial life insurance claims to get rejected, according to preliminary research from key industry organisations.
Eight per cent of people who pursued a payout were rejected in 2016, which means approximately 8,100 claims were turned down.
The Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) published the figures as part of a wider move to improve transparency within the industry.
ASIC research from last year showed similar results, with 90 per cent of claims paid in the first instance.
Payout rates differ between life products. Total and permanent disability (TPD) claims have a 16 per cent rejection rate, while 14 per cent of people with trauma insurance - otherwise known as critical illness cover - are turned down.
One of the main problems with life insurance claims reporting is the lack of standardised definitions between insurers. Each company has its own descriptions and key metrics, making it difficult to collect high-quality, comparable data.
"Significant progress has been made to date on this initiative to develop a consistent public reporting regime for claims data and claims outcomes, which will improve transparency and accountability in the life insurance industry," said APRA Member Geoff Summerhayes.
"We are now focusing on the ability of insurers to report according to these common definitions, including how they can do their best to manage system constraints."
One example of conflicting terminologies is the different interpretations of 'reported', 'declined' and 'withdrawn' when referring to claims among insurers.
These disparities make it challenging to differentiate between claims that are rejected by the insurer and those that are voluntarily withdrawn for other reasons.
When an insurer rejects a claim for TPD cover or other types of life insurance, the policyholder can dispute the decision.
According to the ASIC and APRA data, 3.5 per cent of reported claims were disputed in 2016 - the equivalent of 4,400 cases. This figure included disputes lodged with the insurers, as well as external dispute resolution organisations and the courts.
Legitimate claims may be rejected for a number of reasons, which is why policyholders should check with expert superannuation and insurance lawyers to see whether or not the decision can be overturned.
If you'd like legal advice about disputing a life insurance claim, please contact Gerard Malouf & Partners Superannuation Lawyers.