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Claims investigations: a case to answer?


Insurance fraud clearly needs to be tackled. After all, who wants to pay more in premiums to subsidise swindlers?

But, according to a new Financial Rights Legal Centre report, claims investigations have gone too far, with innocent consumers treated as criminals and subjected to bullying and harassment during gruelling interviews.

The report – Guilty Until Proven Innocent: Insurance Investigations in Australia – details the traumatic experiences of 40 claimants.

“We regularly hear of consumers being threatened with the rejection of their claim or other outrageous conduct, such as having their relatives reported to immigration,” the centre’s Principal Solicitor Alexandra Kelly says.

“Many of our clients feel they have been subject to racial profiling, and others with poor English skills have not had access to appropriate translators. Consumers are also subject to incredibly long interviews – sometimes more than five hours in length.

“Our clients routinely feel bullied, harassed and intimidated by investigators and often describe being treated like criminals.”

The report says the average investigation and dispute duration is almost 18 months, with some topping three years.

Many claims are withdrawn, it says – not due to any admission of fraudulent behaviour, but simply because the process is so onerous.

The report also alleges the true scale of insurance fraud is “routinely exaggerated” by the industry.

“The industry regularly throws around a $2.1 billion annual insurance fraud figure, but it turns out this is based on a 20-year-old estimated percentage of claims insurers ‘believed to be fraudulent’, rather than on any proven fraudulent claim data,” Ms Kelly says.

“We, of course, are not saying that fraud doesn’t exist. It does. However, it is this type of exaggerated rhetoric that builds a ‘guilty before proven innocent’ culture and ultimately helps justify the industry’s poor treatment of policyholders.”

The report makes a series of recommendations, headlined by the establishment of best-practice investigation standards in the General Insurance Code of Practice.

The code should also include a statement on diversity and anti-discrimination, plus minimum standards on the use of interpreters, and investigators should be given ongoing training.

In response, the Insurance Council of Australia (ICA) says the “anecdotal” report must be viewed in the wider claims context, and warns premiums will rise if investigations don’t single out the frauds.

Almost 1 million claims were lodged in NSW alone in 2014/15. General insurers investigated fewer than 30,000 (3.2%), with about 3250 denied by the insurer or withdrawn.

“The 40 anecdotes described in the report are not evidence of a systemic problem with insurance investigations,” CEO Rob Whelan says.

ICA has also defended its fraud figures.

“The current estimate of 8-9% of all claims being fraudulent, at a cost of more than $2 billion a year, was last analysed in 2014. This is in line with comparable insurance markets, including the UK (8-9%) and Canada (15%).”

ICA believes consumers are already well protected under the Insurance Contracts Act and the General Insurance Code of Practice.

However, it recognises being investigated can be stressful for policyholders, and they deserve to be treated in a “sensitive and respectful” manner.

“In the unusual circumstances in which this might not occur, insurers will take action to protect their customers and their corporate reputations,” Mr Whelan says.

“It is noteworthy that the report cites instances where contracted private investigators who allegedly behaved inappropriately were disciplined or sacked by the insurer.”

ICA says it would support a review of professional standards in the private investigation industry.

It also expects the Code Governance Committee to consider the report’s recommendations.

IAG told it pays the vast majority of claims and investigates only when more information is required.

Its investigation operations manual outlines procedures and guidelines for dealing with customers, “going well beyond the requirements of the code”.

However, IAG accepts “there can be cases where we could have done better, as there are some matters that could be dealt with more sensitively”.

“We’re using this report as an opportunity to review our practices, remind our investigators of our policies and procedures that ensure our customers are treated fairly, and participate in discussions on standards, if that’s the way the industry progresses,” a spokesman said.

We may never know the true scale of insurance fraud, but it remains a serious issue that needs to be addressed.

Insurers must be careful, though, that the response does not create more problems than it solves.