ASIC tells life insurers to review systems after thousands underpaid

The corporate watchdog is telling life insurers to review their systems for paying out claims, after past failures led to thousands of people being underpaid benefits, sparking a series of compensation schemes.

The Australian Securities and Investments Commission (ASIC) says that in the past three years, seven different life insurance businesses have self-reported breaches involving the miscalculation of benefits, especially for income protection policies.

Six of these insurers have completed compensation schemes in the past three years, while global group Resolution Life, which bought AMP’s life insurance business in 2020, is part of the way through a long-running refund program that involves sifting through more than 30,000 customer files. Resolution has provisioned $50 million for the compensation scheme, ASIC said.

The watchdog, which gained extra powers to police claims handling following the Hayne royal commission, is urging the rest of the industry to review the systems used to calculate benefits, amid concerns the problem is even more widespread.

ASIC will on Monday tell Resolution customers to contact the insurer if they have concerns about their income protection claim, and it will publicly call on the industry to review the systems they use to calculate payouts.

In a statement, ASIC deputy chair Karen Chester said that if insurers found problems with their payouts, the regulator expected them to find and fix the issues.

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“Consumers need to have confidence that their insurers will calculate and pay their claims accurately. With seven life insurers now having self-reported this breach to us, we are calling on all remaining life insurers to ‘review to ensure’ that this problem does not extend to them,” Chester said.

ASIC said it had identified “system failures” in the industry that resulted in the consumer price index being wrongly applied to payouts, leading some to be underpaid while others were overpaid. The problem has most commonly occurred with income protection policies, which pay people who are sick or injured a regular income, which may need to increase with inflation.