The agony of waiting: group life insurers are pushing claimants to the brink
- 22 Oct 2019
Need to know
- Around 12 million Australians hold total and permanent disability (TPD) insurance through their super
- Lawyers working in the field say that super funds and insurers routinely delay and drag out claims
- Long processing times are known to cause claimants distress, financial hardship and relationship breakdowns
On this page:
- What is group life insurance?
- The problem of delays in group life insurance
- Why do group life insurance claims take so long?
- Disputed claims and lengthy delays harm mental health
- The risk of secondary harm
- Payout delays can be financially disastrous
- New powers to end harmful delay
Group life insurance is the system used by Australian employers as a way of giving people basic life insurance, including total and permanent disability (TPD) cover, through their superannuation fund. This will pay out if they die or are unable to work due to injury, illness, or disability.
Unlike other forms of life insurance, group life insurance offers universal coverage without requiring people to undergo medical tests, give their medical history or be screened for pre-existing conditions. The insurer essentially makes assumptions about the likely health outcomes for all those insured.
It's a relatively low-cost system and the cover can offer much needed financial support for people whose retirement savings would be otherwise depleted because illness or injury forces them out of work.
Health advocates and lawyers working in the system say group life insurance is rife with delays and time-wasting on the part of both insurers and super funds.
Some have suggested this is deliberate on the part of the insurer, who can make more from hanging onto the money than paying out quickly, even factoring in any interest they may have to pay the claimant.
There's two rules in insurance. Rule number one is: 'Don't pay unless you have to' and rule number two is: 'If you have to pay, write the cheque very slowly'Josh Mennen, Australian Lawyers' Alliance
Whatever the reason for this delay, it has a massive impact on the lives of claimants, who are already in a vulnerable position.
All too often, people making claims face financial strain and their families and relationships are placed under pressure, which leads to them experiencing 'secondary harm' from the ordeal of the process.
Josh Mennen, spokesperson for the Australian Lawyers' Alliance, says "delay in insurance claims is as old as insurance itself".
"There's two rules in insurance," he says. "Rule number one is: 'Don't pay unless you have to'; and rule number two is: 'If you have to pay, write the cheque very slowly'."
Delay in claim handling is the second most common complaint around superannuation received by the Australian Financial Complaints Authority (AFCA).
Lawyers who've been working in insurance for years report a long list of obstacles people face when they make a claim, which often string out what's already a long and trying process.
Alexandra Kelly, director of casework at the Financial Rights Legal Centre (FRLC), says "we've had complaints about delay pretty consistently" through the centre's Insurance Law Service, which has operated since 2007.
Drip-feeding requests for information
One common frustration is piecemeal requests for documentation. This is when insurers ask for information relating to the claim piece by piece, often with time passing between each request, instead of asking for all the necessary documents upfront.
The FRLC has previously expressed its concern about this practice, which is familiar to its Insurance Law Service solicitors. The centre believes such stalling is among the "unethical strategies used to drag out claims leading consumers to tire out and disengage".
Another common hurdle for claimants is 'doctor shopping', which in this context means an insurer referring the claimant to multiple medical specialists if they're not happy with the initial report. Carl Mickels, senior solicitor at Firths, says this is an inevitable part of the process.
At times, the independent medical experts used by insurers appear to have been cherry-picked to suit their needs and deny claims.
At times, the independent medical experts used by insurers appear to have been cherry-picked to suit their needs and deny claims.
The FRLC has seen examples of chronic fatigue syndrome sufferers being referred to a doctor who has published work disputing the condition even exists. Some lawyers have even reported doctors being flown in from interstate instead of claimants being referred to local practitioners.
Slow responses and poor communication
Other times insurers are simply tardy to respond, fail to reply until the claimant follows up, or give 'updates' that only say the matter is still being reviewed.
As the claim progresses, many report a lack of communication, calls being put on hold for long periods or not being returned, documents relating to the claim not being forwarded and claimants being asked for the same information twice.
Another common bugbear is a claimant being disadvantaged by personnel changes within the insurer.
"If someone's been on a claim for a little while and the claim manager changes, there may be stagnation or delay in payment until the file has been reviewed in full," Snowden says. "We are still seeing that (problem) quite regularly and that's really concerning."
Super funds also at fault
In theory, the superannuation funds act as an advocate for the member's claim with the insurer. But in practice, they often fail to keep members up to date with where the claim is in the process, and are reluctant to engage with either the member or the insurance company.
A person making a claim for TPD through group life insurance will initially contact their super fund. The fund then passes their information on to the insurer, but there are often hassles and complications from the start.
We've had cases where the claim is sitting with the fund for over six months. They never passed it onCarl Mickels, Firths compensation lawyers
"There can be a long period of time before you even know your claim has been passed on to the insurer," Kelly explains. "That can be a very stressful and non-transparent period."
"They'll lose documents, they'll sit on them," Mickels says of super funds. "We've had cases where the claim is sitting with the fund for over six months. They never passed it on."
Calculating and processing of payment
Even when the insurer has agreed to pay the claim and transferred money to the super fund, the claimant often faces a further wait. In some funds, meetings between super fund trustees and insurers may be weeks apart.
This means that people who've had their claim approved often face further frustration and waiting to receive their money.
Snowden says the calculation of payments can add even more time to a painfully drawn-out process. One woman her firm represented in a claim for income protection had to wait 10 months for a decision, a timeframe Snowden considers "absolutely disgraceful". It then took another half a year before the calculation of the exact payments and offsets was finally finished and she was eventually paid.
Dr Grant Blashki is a GP and lead clinical adviser at mental health charity Beyond Blue. "For patients, it's a really stressful time," he says of the claims process. "Some of my patients have felt there is a long delay ... it's definitely a source of tension for people."
Internal research conducted by Beyond Blue supports this. It compiled the experiences of people with mental health conditions who'd made insurance claims. Half the respondents who'd made a TPD claim said the process had a negative effect on their mental health.
"Disputed claims and/or lengthy delays can be extremely stressful and, in some cases, may exacerbate a person's mental health condition," concludes another report by the organisation.
The claims process … can have an impact on a customer's mental health, often amplifying symptoms of depression, anxiety and, in extreme cases, suicidal ideation
Will Barsby, Shine Lawyers
Blashki says his patients have expressed this frustration. "There often seems to be a lot of to and fro with paperwork," he says.
For the lawyers representing claimants, this is a familiar story. Will Barsby, national special counsel at Shine Lawyers, has seen the damage done by delay.
"People often become so overwhelmed by the claims process that they often want to give up," he explains. "This can have an impact on a customer's mental health, often amplifying symptoms of depression, anxiety and, in extreme cases, suicidal ideation."
Research around insurance claimants has identified the potential for 'secondary harm', which is where the process itself leads to suffering.
People who've gone through the process have related the trauma involved with re-telling the story of how they become injured or disabled. Often, they have to tell their story several times to insurers and medical experts.
The Australian Securities and Investment Commission (ASIC), which is responsible for ensuring super funds meet their legal obligations when dealing with consumers, has also highlighted the strain a lengthy process can exert on a claimant.
Delayed claims can be extremely stressful for claimants.
"This could lead to significant stress for the policyholder, at a time of existing distress from the claim event", it reports. At least one super fund executive has also acknowledged that the claims process can induce anxiety.
Mennen says that the limbo can actually be worse for a client than simply having their claim denied. "While a claim is pending for a long period of time, (clients) have uncertainty. It causes stress. It can exacerbate psychological conditions. It can also make it far more difficult for a disabled person to get back on their feet and return to the workforce."
Sarah Snowden, state practice group leader at Slater and Gordon, says that in her experience, claimants that start out with a primarily physical injury can develop broader symptoms. "12, 18 months later, we're submitting a TPD claim for psychological and physical injury on the basis of the delay and distress caused."
For people out of work and waiting on an insurance payout to make ends meet, unnecessary delay can add to what's already a dire financial situation.
Barsby related cases of claimants being forced to sleep on couches with their young family in tow while waiting for emergency accommodation to become available, and of others having to live in their cars or a tent during the process. The FLRC told us of claimants needing to adjust the terms of their mortgage, facing foreclosure proceedings on their homes or dealing with spiralling personal debts while they wait for a resolution.
Slater & Gordon's Snowden says the financial burden on claimants can also form a hurdle to their recovery. "We find that takes the focus off the condition and accessing treatment," she says.
I've seen people separate from their spouses over it ... it has a devastating effect on family and childrenCarl Mickels, Firths compensation lawyers
When a person with dependents suffers a debilitating illness or injury and can no longer work, everyone around them can be plunged into turmoil.
"I've seen people separate from their spouses over it," Carl Mickels, from Firths, relates. "It has a devastating effect on family and children."
Mickels says many people making claims face a combination of stressors and difficulties.
"Often someone has no money coming in, except for Centrelink and maybe workers' compensation or income protection. They're in a lot of pain from the physical injury and emotional pain, if you want to call it that. Add that to the delay and the claims process causes a lot of grief."
Despite the enormous impact it can have on peoples' lives, the handling and settlement of insurance claims is currently not covered by the definition of 'financial service'.
A consultation on removing this loophole was completed in March 2019 with the government promising the introduction of legislation before the end of 2019.
"The reasons for these kinds of terrible claims-handling experiences are clear," says Xavier O'Halloran, director of Super Consumers Australia. "They didn't have to act efficiently, honestly and fairly when handling people's claims. This tied the hands of the regulator to take action against misbehaving insurers.
"At the insistence of consumer advocates across the country the Hayne Royal Commission recommended shutting down this loophole. We now await urgent legislation to ensure no more people are harmed by poor claims handling."
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This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.