Roadblocks and roundabouts – ASIC's review of car insurance investigations
Originally Published by Benjamin Karalus and Christina Stoikos on Friday, July 12, 2019 2:08:25 PM
A review of 1.6 million claims was recently undertaken by ASIC into the practices of insurers in investigating motor insurance claims where fraud was suspected. The report, 'Roadblocks and roundabouts: A review of car insurance claim investigations' was delivered in July 2019.
The review looked at 1.6 million car insurance claims from a cross-section of Australian Insurers dated from September 2016 to September 2017.
The Report acknowledged that fraud is "a real and serious issue" and that "insurers need to investigate, identify and deny fraudulent claims".
The Report details criticisms of some practices of investigators and the role that sound communication plays in improving the claims experience. It should be noted the commentary on the investigation process in motor claims could be broadly applicable to investigations on all types of insurance claims.
The data indicated that out of the 1.6 million claims reviewed, insurers flagged 4.85% of claims as suspicious but investigated 1.1% of claims. Of the investigated claims, 71% were paid, 4% were declined for fraud, and 10% for 'other reasons'.
Interestingly, the Report acknowledged that the expectation of consumers for neutrality in the investigator is inconsistent with the verification of suspected fraudulent claims.
There was found to be a direct correlation between the manner in which interviews were conducted and the experience of the consumer. Those insureds that considered the investigator to be respectful were also more likely to report satisfaction with their claim.
When communication was lacking at any stage of the claim the consumer experience often also deteriorated.
ASIC has suggested that insurers should look to employ, amongst other things, the following standard communications on every new claim which is to be investigated:
ASIC has indicated in the Report that it is ready to pursue new civil penalties which came into effect in March 2019 where general insurers breach their duty of utmost good faith to their insureds. With significant civil penalties now available for breaches of the duty of utmost good faith, ASIC has promised to take action against insurers who breach their duties.
ASIC has proposed the following better practices to ensure a consistent approach that will treat consumers fairly, reasonably and in line with community expectations. It is noted that some of the recommendations are slated for inclusion in the revamped code of practice but given the uncertainty in the date of delivery of the updated code, urgent steps should be taken to implement the recommendations.
The practices include:
The ASIC report was generally critical of the investigation practices employed by some investigators and noted that communication by the insurer to the insured was central to improving the claims experience and reducing the dissatisfaction of consumers. ASIC has marked its intention to seek and enforce remedies and penalties available to it. It is worth noting that that the claims reviewed were more than two years old and come prior to more recent steps taken by many insurers to review and improve their investigation and consumer experience processes.
The identification and prevention of fraudulent claims, both first party and third party, is crucial for all insurers. The methods used in identifying and thereafter investigating such claims is clearly an area that ASIC has taken a keen interest in.
McCabe Curwood worked with CTP insurers in identifying a significant increase in fraudulent claims by several law firms in 2016. We chaired a Fraud Summit amongst all CTP insurers and representatives of leading defendant law firms to implement a targeted strategy to manage fraud claims.
The strategy developed and implemented by McCabe Curwood resulted in:
McCabe Curwood continues to work closely with the Insurance industry in developing best practice fraud identification and investigation methods.
For more information, the link to the report can be found at:
https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-621-roadblocks-and-roundabouts-a-review-of-car-insurance-claim-investigations/
The review looked at 1.6 million car insurance claims from a cross-section of Australian Insurers dated from September 2016 to September 2017.
The Report acknowledged that fraud is "a real and serious issue" and that "insurers need to investigate, identify and deny fraudulent claims".
The Report details criticisms of some practices of investigators and the role that sound communication plays in improving the claims experience. It should be noted the commentary on the investigation process in motor claims could be broadly applicable to investigations on all types of insurance claims.
The data indicated that out of the 1.6 million claims reviewed, insurers flagged 4.85% of claims as suspicious but investigated 1.1% of claims. Of the investigated claims, 71% were paid, 4% were declined for fraud, and 10% for 'other reasons'.
Key takeaways from the Report
- Poor investigation practices erode trust. The report found that elongated and numerous interviews put unwarranted stress on insureds. Additionally, the practice of interviewing an insured at their home or by telephone without prior notice was identified as potentially intimidating and causing discomfort to insureds.
- Communication is all-important. A failure to notify insureds about the investigation of their claim or keep them updated with the progress of their claim led to frustration and anger on the part of consumers and damaged the relationship between insurer and insured.
- Delays can have harmful effects on consumers. There was a lack of compliance with the 4-month window for claim determination stipulated by the Insurance Code of Practice with many claims taking significantly longer to resolve with the highest percentage of claims taking between 8 months to 1 year.
How to change consumer perception
Interestingly, the Report acknowledged that the expectation of consumers for neutrality in the investigator is inconsistent with the verification of suspected fraudulent claims.
There was found to be a direct correlation between the manner in which interviews were conducted and the experience of the consumer. Those insureds that considered the investigator to be respectful were also more likely to report satisfaction with their claim.
When communication was lacking at any stage of the claim the consumer experience often also deteriorated.
ASIC has suggested that insurers should look to employ, amongst other things, the following standard communications on every new claim which is to be investigated:
- notification that the claim will be investigated
- overview of the claims process
- contact details of the person investigating the claim
- how the consumer can make a complaint
- the purpose and possible duration of the investigation
- the volume and types of documents that may be required to produce during an investigation.
ASIC enforcement action
ASIC has indicated in the Report that it is ready to pursue new civil penalties which came into effect in March 2019 where general insurers breach their duty of utmost good faith to their insureds. With significant civil penalties now available for breaches of the duty of utmost good faith, ASIC has promised to take action against insurers who breach their duties.
ASIC's proposed strategies
ASIC has proposed the following better practices to ensure a consistent approach that will treat consumers fairly, reasonably and in line with community expectations. It is noted that some of the recommendations are slated for inclusion in the revamped code of practice but given the uncertainty in the date of delivery of the updated code, urgent steps should be taken to implement the recommendations.
The practices include:
Safeguard for consumers
- Insurers should regularly review fraud investigation indicators to ensure that they are relevant and do not discriminate against types of consumers.
- When an investigation starts, insurers should give written information about the purpose, scope, and expected timeframe of the investigation, what it may involve, and how the insured can complain.
Fair and efficient interviews
- Consumers should not be interviewed excessively. This means they should be:
- advised of the expected duration of the interview before it begins;
- given a break every 30 minutes during an interview; and
- interviewed for no longer than 90 minutes in any one sitting, and no longer than 4 hours in total, unless the insurer has given written approval with reasons why this would be justified.
- Consumers should be asked to participate in an interview only if it has been scheduled in advance for a time that is suitable for the consumer.
Investigating claims professionally
- Insurers should request information only if it is strictly relevant to the claim and clearly communicate why each item of information is necessary and relevant.
- Insurers and investigators should treat consumers respectfully, approach investigations with an open mind, and avoid acting in ways that are likely to intimidate or unduly pressure consumers.
- All claims, including investigated claims, should be decided within four months.
- Consumers whose claims are paid should not be declined further insurance unless compelling and exceptional reasons exist.
What does this mean for insurers?
The ASIC report was generally critical of the investigation practices employed by some investigators and noted that communication by the insurer to the insured was central to improving the claims experience and reducing the dissatisfaction of consumers. ASIC has marked its intention to seek and enforce remedies and penalties available to it. It is worth noting that that the claims reviewed were more than two years old and come prior to more recent steps taken by many insurers to review and improve their investigation and consumer experience processes.
How can we help?
The identification and prevention of fraudulent claims, both first party and third party, is crucial for all insurers. The methods used in identifying and thereafter investigating such claims is clearly an area that ASIC has taken a keen interest in.
McCabe Curwood worked with CTP insurers in identifying a significant increase in fraudulent claims by several law firms in 2016. We chaired a Fraud Summit amongst all CTP insurers and representatives of leading defendant law firms to implement a targeted strategy to manage fraud claims.
The strategy developed and implemented by McCabe Curwood resulted in:
- The earlier identification of fraudulent claims resulting in their deterrence.
- In CTP claims, several matters were referred to police for investigation ultimately resulting in the prosecution of several lawyers at Plaintiff firms.
McCabe Curwood continues to work closely with the Insurance industry in developing best practice fraud identification and investigation methods.
For more information, the link to the report can be found at:
https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-621-roadblocks-and-roundabouts-a-review-of-car-insurance-claim-investigations/