Claims about claims
You may have heard about a recent ASIC life insurance report that showed how some insurance companies pay out many more claims than others. The companies were anonymous and only their percentages were displayed with some companies being excellent and others having very high rejection rates of at least some claims. This put enormous pressure on those with high claims rejection rates to go public and some companies did and explained that included among the rejected claims there were claims from people that were not insured with them or that were rejected for other very clear reasons.
The biggest surprise in the ASIC report, which is interesting reading is that there are no common definitions for what is a claim and what is not a claim. In other words, apples were compared with oranges and the insurance companies could choose what they considered to be a claim or not and some of them chose definitions that showed a lot of rejected claims. Why didn’t everybody put their best foot forward by choosing very tight definitions?
Here it gets embarrassing for the insurance companies: When the ASIC request came, they weren’t prepared and could only offer their existing internal statistics which were never meant to be made public and they simply didn’t have the time to change the definitions and review their rejected claims again. Yes, big companies can make mistakes and they sometimes only notice when it is too late.
I have a feeling that there will be big changes. Firstly, there will be common definitions of what is a claim and what isn’t so that the numbers become comparable. Second, companies will be more careful when rejecting a claim and there may be other changes. If claims experience becomes much more important, insurance companies may start rejecting more applicants – for example, the insurance company I know to be the toughest at application time today tells me it is the best at paying claims. There are swings and roundabouts but one big benefit will be that certain abuses like paying claims managers for rejecting claims will probably stop immediately. A further interesting and valuable point was that when financial advisers are involved, more claims get paid, which means that the policies that are the best value for money and often the cheapest, those administered by a financial adviser, also have the best claims experience. It clearly makes an enormous difference when the insured has somebody on their side compared to when they are on their own.