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Suncorp front and centre as insurance industry prepares for day of reckoning

The biggest issues for the general insurance sector is policies with unfair terms, exclusions, limits on liabilities, unreasonable claims requirements and insurance affordability, particularly in high-risk areas such as cyclone zones and flood-prone areas. Peter Rae SMH The biggest issues for the general insurance sector is policies with unfair terms, exclusions, limits on liabilities, unreasonable claims requirements and insurance affordability, particularly in high-risk areas such as cyclone zones and flood-prone areas. Peter Rae SMH

It doesn't get much bigger than a face-off at the royal commission and an annual general meeting in the same week. But that's what Suncorp will be doing in the coming days, as the royal commission grills it over policy terms, advertising and claims handling in its general insurance division, particularly relating to natural disasters.

The biggest issues for the general insurance sector is policies with unfair terms, exclusions, limits on liabilities, unreasonable claims requirements and insurance affordability, particularly in high-risk areas such as cyclone zones and flood-prone areas.

Suncorp CEO Michael Cameron. Louie Douvis

Underinsurance is another issue, where policyholders believe they are insured for the full replacement of a home but when they make a claim, the payout falls short.

These are issues that have been bubbling away for years. Despite a series of parliamentary inquiries that have heard the problems, listened to some shocking stories and made a series of recommendations, little has changed.

It seems the wheels of spin from the insurance industry have managed to stave off real reform – until now.

Day of reckoning

The general insurance industry's day of reckoning is coming.

ASIC said it conducted the review after concerns were raised by Victorian Liberal MP Sarah Henderson, following the Wye River bushfires in 2015. More than 100 properties were lost in the Christmas Day bushfire.

The royal commission has heard a litany of outpourings of horror stories ranging from financial advice, super, life insurance, small business, farming financing. Decisions by a number of financial institutions to hive off problem businesses won't bring an end to the problems.

For instance, Suncorp's decision to offload its life insurance business to TAL includes a deal where it agrees to distribute Suncorp-branded life products that are underwritten by TAL. It is something that shareholders might want to raise at the annual meeting, along with a series of other issues raised at the royal commission.

Senior counsel assisting the royal commission Rowena Orr, QC, made the damning observation that TAL had a culture that "encouraged and supported active attempts to find reasons not to pay out claims" and had serious systemic conflicts in its claims handling.

How that sits with Suncorp, shareholders and the regulators, given the deal with TAL, is yet to play out.

So far the royal commission has examined Suncorp's retail super fund operation, making open findings its trustee may have breached the Superannuation Industry (Supervision) SIS Act, including by failing to place the financial interests of members ahead of those of Suncorp, failing to exercise due care, skill and diligence and failing to perform its duties in the best interests of members.

Trustees are required by law to put the interests of super fund members ahead of those of its parent company.

Suncorp has rejected all six open findings against it, saying there was "insufficient evidence" to support them and some were "directly contradicted" by other evidence before the commission.

Reject claims and surveillance problems

Suncorp's life insurance business also raised eyebrows at the royal commission when it was revealed Suncorp Life had the highest rate of rejected claims for total life insurance claims, with more than 4 per cent of all claimants denied.

It also had the highest level of surveillance across both physical and mental health claims of all the 10 insurers over the five-year period.

Between 2014 and 2016 it spied on a massive 17.2 per cent of policyholders who lodged mental health claims.

To put it into perspective, Westpac's life insurance arm came in second, spying on 9.3 per cent of mental health claimants between 2013 and 2016, followed by Commonwealth Bank's CommInsure, which, between 2013 and 2016, spied on 7 per cent of mental health claimants.

Suncorp's now defunct financial advice business Guardian Financial Planning managed to dodge the gaze of the royal commission in an earlier round, but that doesn't mean its remediation program won't be dealt with.

Earlier this month myself and colleague Ruth Williams revealed that Suncorp's Guardian business, which specialised in flogging life insurance advice to 130,000 clients Australia-wide via an army of 257 advisers, was so bad it closed it down.

A cache of confidential internal documents, including dozens of client remediation files and a PwC document, detailed serious flaws in internal processes, excessive churning of life insurance policies to grab upfront commissions, as well as breach reports filed to the corporate regulator.

The PwC report, sent to the then senior Suncorp executive Geoff Summerhayes, who is now one of the three most powerful figures at the Australian Prudential Regulation Authority (APRA), reveals that ASIC believed Guardian "[did] not ensure its representatives have the necessary knowledge, skills and competence to provide financial advice to retail clients".

ASIC imposed licence conditions on Guardian in January 2015, while Summerhayes was running Suncorp Life, which included the financial advice division.

So far, 89 customers have been paid a total of $150,000 and another 412 customers have been contacted with an offer. "We expect the number to increase as we continue to review client files and we remain fully committed to remediation," Suncorp said in a statement.

For now Suncorp will focus on its AGM and what might come out at the royal commission in relation to its general insurance business, which has had its fair share of scandals in recent years.

Misleading ads

The most recent was a series of misleading advertisements in relation to its Home Building Insurance "complete replacement cover" and the questionable treatment of some policyholders in the aftermath of natural disasters.

The Australian Securities and Investments Commission (ASIC) pinged Suncorp's AAMI division late last year with a $43,200 fine for false and misleading advertising for home insurance in its AAMI business in relation to four ads.

The ads, which appeared on the website and radio between November 2016 and July 2017, said AAMI would repair or rebuild the insured house, no matter what it cost. What it didn't say was that AAMI could give the policyholder a lump sum to arrange the repair, which could be far less than the replacement cost.

In its press release at the time, ASIC said it conducted the review after concerns were raised by Victorian Liberal MP Sarah Henderson, following the Wye River bushfires in 2015.

More than 100 properties were lost in the Christmas Day bushfire. Suncorp's AAMI was accused of under-quoting the cost of rebuilding homes.

On June 22, this year, Henderson wrote on her website that the policy was "fundamentally flawed" in the way it assessed the rebuild costs. The upshot was it short-changed some claims by as much as half a million dollars.

She slammed the investigation by ASIC as a "whitewash" under former chair Greg Medcraft, failing to properly address the insurer's conduct.

"ASIC stated that it did not have jurisdiction in relation to insurance claims assessments. If changes in the law were required, why didn't ASIC say something at the time?"

No doubt ASIC's role in oversight of general insurance will be raised this week. It has conducted a number of reviews over many years and pinpointed the issues. Whether that has translated into effective regulation will be an issue for the royal commission.

Last week ASIC was put under the blowtorch in its handling of the Commonwealth Bank's life insurance scandal, which included allowing it to view and amend a draft press release and make a $300,000 donation instead of an $8 million fine after four ads were deemed false and misleading.

Not surprisingly, it shocked Commissioner Kenneth Hayne, who posed the question: "The regulator asking the regulated whether the proposal was sufficient in the eyes of the party alleged to have broken the law?" It's a good question that deserves an answer.

This article was first published by: https://www.afr.com
Author: Adele Ferguson
Last modified onSunday, 16 September 2018 22:11

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