Unnecessary and unwarranted delays by insurers assessing claims can be frustrating for policyholders and can often lead to significant financial hardship. Understanding the rules and regulations for insurers when they are assessing a claim can be vitally important to getting a claim approved and approved in a timely manner.
There are a number of different rules and regulations relating to the way that insurers conduct themselves on claims, and we find that the Life Insurance Code of Practice (“LICOP”) and the General Insurance Code of Practice are particularly useful when trying to understand how an insurer must act when assessing a claim. This includes the time the insurer takes to assess claims and, where claims are accepted, the time it takes to make the payment.
What is the Life Insurance Code of Practice (“LICOP”)?
The Council of Australian Life Insurers (“CALI”) has voluntarily introduced the Life Insurance Code of Practice (“LICOP”) to protect consumers within the life insurance industry. Whilst the code has been voluntarily introduced, there can be serious consequences for the insurer if they are found to be in breach of the LICOP.
The LICOP sets out the following timeframes for handling claims:
- For income-related benefits, such as claims under an income protection policy, a decision is required within 2 months of the Claim Received Date or at the end of the waiting period - whichever is the later date.
- For lump sum benefits, such as total and permanent disability (“TPD”) benefits, a decision needs to be made within 6 months of the Claim Received Date or at the end of the waiting period - whichever is the later date.
The Code also sets out expectations for how frequently an insurer must communicate with you on a claim and has special rules for vulnerable people, which are defined in the Code as:
6.1 ...customers may experience vulnerability due to age, disability, injury, a Mental Health Condition, physical health condition, language barriers, literacy barriers, cultural background, remote location, Aboriginal or Torres Strait Islander status, family violence, suicidality or suicidal behaviours or financial distress.
However, an insurer or fund may believe that they cannot comply with these timeframes and may issue a “Circumstances Beyond Our Control” letter or they may simply ignore the code.
Unfortunately, breaches of the LICOP do not allow you to bring an action directly against the insurer, but they can be reported to the Code Compliance Committee (which can lead to fines for the insurer). The code is also useful if your claim is with an Ombudsman (AFCA) as it provides a standard for what should be done on a claim and when it should be done.
You can read more about this in our earlier blog, “The Life Insurance Code of Practice”.
What is the General Insurance Code of Conduct?
If you are looking to lodge a claim in respect to general insurance (for example, for damage to your home, business or other property), the Insurance Council of Australia sets out the General Insurance Code of Practice for the general insurance industry.
The General Insurance Code of Practice prescribes that:
- An insurer needs to make a decision on your claim within 4 months of receiving your claim. However, specific circumstances can allow for an insurer to make a decision within 12 months (see page 30 of the code).
- If an insurer has all the relevant information and has completed all enquiries, they must make a decision on your claim within 10 business days.
Like the LICOP, insurers may issue a Circumstances Beyond Our Control letter. Also, similar to the LICOP, you cannot bring an action or claim directly against an insurer for breaching the code, but breaches can lead to fines for insurers.
What can you do if your insurance claim is delayed by the insurer?
Unfortunately, there is no quick and easy resolution to delays during an ongoing claim. If the codified timeframes are breached or you believe the insurer has enough information, you may decide to take any of the following steps:
- Lodge a complaint with the insurer and fund directly. You will typically have to wait a further 30 or 45 days for a response.
- Raise your concern with the General Insurance Code Governance Committee or with the Life Code Compliance Committee.
- Lodge a complaint with the Australian Financial Complaints Authority (“AFCA”). Read more about AFCA complaints in our earlier blog, “AFCA complaints against superannuation funds and insurers".
You should also ensure that your product is covered by the relevant code before lodging a complaint or raising an issue about a breach.
It’s important to understand that a decision that the life or general code has been breached will not lead to your claim being accepted or compensation being paid to you. It’s also important to make sure that your claim continues to be assessed while the code breach is investigated. This may mean that you need to continue to provide documents or other information which are reasonably required by the insurer when assessing your claim.
Can I be compensated for delays by insurers?
If an insurer has taken an unreasonable amount of time to decide to pay your claim, you may be entitled to claim interest on your benefit.
Interest is payable from the date it becomes unreasonable for an insurer to have withheld payment to the date your claim was approved and, in some cases, to the date your benefit was paid.
The question then becomes, what does “unreasonable” mean?
The answer is, unhelpfully, “it depends”, but the codes can help to work out if it was an unreasonable delay.
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How long is too long, to wait for your insurance payments?
It depends on the specific circumstances of your case and the terms of your insurance policy. However, usually a claim should be paid from when the insurer had all of the information that it needed to accept the claim.
For example, a reasonable time to assess a TPD claim can be as little as 3 months if the evidence shows that you satisfy the relevant TPD definition and all of the available medical evidence supports that this was the case.
Interest can also be paid in circumstances where an insurer/fund spends months investigating non-disclosure or how an exclusion may have applied before abandoning the investigation and accepting your claim.
The interest owed on your benefit can accumulate to a significant sum of money.
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Seeking interest on a delayed insurance payout
- You can lodge a request for interest or submit a complaint with an insurer/fund directly after your claim is approved;
- Lodge a complaint with the insurer or to AFCA if they refuse to pay interest;
- Issue court proceedings against an insurer/super fund.
You can read more about interest options in our earlier blog, “When am I owed interest on my TPD or income protection benefit?”
Get help from an insurance lawyer
The issues associated with delays in insurance claims may sound complicated, but the team at Berrill & Watson is here to give you quality legal advice. We can identify the issues for you and recommend the best path of action; whether that be getting the insurer to respond or helping you receive interest entitlements as a result of delays by the insurer.
Contacting Berrill & Watson
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