After a lot of arm twisting, Westpac's life insurance arm has been outed as the insurer declining one-in-three total and permanent disability (TPD) claims made by its customers.
The admission was made hours after the corporate watchdog refused in parliament to reveal the identity of the country's biggest decliner of life insurance claims in TPD.
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Banks fires up about banks
Liberal MP Julia Banks remains steadfast when continually questioning the ASIC boss about his dealings with the Commonwealth Bank, unhappy with the answers.
Westpac's life insurance arm, BT Financial Group (BTFG), briefed politicians on Friday night then issued a public statement admitting it had a denial rate of 37 per cent on TPD policies.
But the press release said the figures should be treated with caution and were not comparable.
"The facts are that BTFG declined 58 TPD claims in 2015. During the same period, BTFG paid $255 million in life insurance claims to 2640 beneficiaries."
TPD insurance claims are paid where a policyholder is unable to work again.
It comes as pressure mounts on the $44 billion life insurance industry to clean up its act after it was revealed Commonwealth Bank's life insurance arm was delaying and denying legitimate claims.
The CommInsure scandal prompted the regulator to investigate the sector, with a report released on Wednesday that outlined significant industry shortcomings.
At a three-hour grilling in parliament on Friday, the corporate regulator was asked about life insurance as well as its investigation into the National Australia Bank financial planning scandal that kicked off almost 20 months ago, and the high rate of financial planners at ANZ with breach reports – one in 40.
Financial advisors across the sector have been caught falsifying client documents, forging client signatures and committing fraud.
Indeed, two years ago ASIC chairman Greg Medcraft told a room full of journalists that Australia was a paradise for white-collar crime.
What seems clear from the various scandals is the financial services industry, for all its attempts to reform itself, still has a long way to go.
If ASIC wants to gain a reputation for being the tough cop on the beat, it needs to be more proactive and more willing to finger the wrong doers, particularly those that continue to offer financial incentives to claims managers to knock back claims.
The parliamentary hearing dedicated much of its time to asking the regulator why it refused to publicly name and shame those insurers that pay staff to knock back life insurance claims, or those that are above the industry average when it comes to claims denials.
It prompted Labor backbencher Matt Thistlethwaite to suggest that ASIC wasn't meeting its obligations, which include striving to promote confidence and transparency in markets.
A series of excuses was given for not naming names, including that the information was divulged using ASIC's powers of compulsion, which involves agreeing to confidentiality. Not surprisingly, the insurers want ASIC to protect their identity. Medcraft went a step further and said: "We can't disclose publicly because that information is commercial in-confidence."
Indeed, Medcraft suggested consumers themselves could go and ask their insurer to provide details of the rate of denied claims. Good luck.
Now we know Westpac has the biggest decline rate for TPD insurance. But what about the others? Who has the biggest decline rate for trauma insurance?
Deputy chairman Peter Kell said the reason ASIC hadn't named names was the data in the report was unreliable. Kell was referring to the fact that some claims management systems are antiquated to the point where they don't readily allow proper reporting, some systems don't support customer service and have poor data quality.
For that reason, releasing the names of the insurers, and which has a high rate of claims denials and which doesn't, would be like comparing apples with oranges.
Kell's explanation opens a can of worms about the state of the $44 billion industry. At the very least, it raises questions about who is ultimately responsible for allowing such a profitable industry – and companies – to operate in such a substandard way.
How can this be acceptable? How have the boards of these companies overlooked these serious shortcomings? Why haven't any heads rolled for allowing this to continue? And how can ASIC say there aren't systemic issues in the industry when the most basic of statistics can't be compared?
It also raises questions about why it has taken a joint media investigation by Fairfax Media and Four Corners to put the spotlight on life insurers.
ASIC had previously done an investigation into the advice industry and found that 37 per cent of advice on life insurance policies was in breach of the law, but it took a media scandal in CommInsure to motivate it to examine the sector at large.
If ASIC wants to gain a reputation for being the tough cop on the beat, it needs to be more proactive and more willing to point the finger at the wrongdoers, particularly those that continue to offer financial incentives to claims managers to knock back claims.
ASIC's report into life insurance reveals that one of the 15 insurers knocked back total and permanent disability (TPD) claims at a rate of 37 per cent. Does this mean it might not be as bad as it seems, or could it be worse? Westpac says it is the former.
Another insurer had a 7 per cent denial rate. Is this accurate? Or could it be worse? Will ASIC only target for further work the insurers with high denial rates? What if the figures for those with lower rates are wrong? Will they dodge a bullet?
It's a big shame this report wasn't released ahead of the bank inquiry last week. If it had been, the politicians could have asked the chief executives of the big four banks about their life insurance arms, including their systems and any financial incentives offered to staff to reject claims of sick and dying customers.
The overwhelming message was that the life insurers call the shots.
The issue of CommInsure was raised after ASIC failed to give an update into its seven-month investigation into allegations that the insurer deliberately denied some legitimate life insurance claims and had claims managers lean on doctors to change opinions.
Liberal MP Julia Banks asked Medcraft about the investigation. "My questions go to the man at the top," she said.
She was concerned that the senior leader at Commonwealth Bank did not know about a systemic problem at CommInsure that had affected peoples' lives until it was exposed in the media.
She asked if ASIC had dragged its heels or taken the right steps to deal with the problem. She wanted to know if ASIC had given the company any recommendations about senior leadership accountability.
Medcraft said ASIC had thrown a lot of resources at CommInsure and its report had highlighted that there was a problem in the insurance sector.
Over the years, the financial services sector has breached community trust. There have been a lot of well-scripted apologies, but the only heads that seem to have rolled are those of the whistleblowers and financial advisers, some of which were acting in a boiler-room culture with conflicted remuneration.
But culture is set at the top. Running a business that deems antiquated systems acceptable rather than spending money to bring them into the 21st century is also a decision that is made at the top.
Until regulators start getting tough and calling out this behaviour, things won't change.
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