tag:theconversation.com,2011:/fr/topics/comminsure-25556/articlesCommInsure – The Conversation2017-09-07T06:31:59Ztag:theconversation.com,2011:article/836382017-09-07T06:31:59Z2017-09-07T06:31:59ZAPRA needs to protect whistleblowers in the CBA inquiry<p>The Australian Prudential Regulation Authority (APRA) should ensure <a href="http://www.apra.gov.au/MediaReleases/Pages/17_34.aspx">its inquiry</a> into the governance of the Commonwealth Bank has all the unfettered powers of the prudential regulator to investigate any wrongdoing. This includes protecting whistleblowers.</p>
<p>The terms of reference of this inquiry and the panel of experts are yet to be disclosed.</p>
<p>As part of its responsibilities for considering corporate governance under the <a href="http://www.bis.org/bcbs/publ/d328.htm">Basel rules</a> (international rules regulating banking), APRA should have mostly unrestricted access to banks’ staff, to conduct its investigations:</p>
<blockquote>
<p>Supervisors should have processes in place to fully evaluate a bank’s corporate governance. Such evaluations may be conducted through regular reviews of written materials and reports, interviews with board members and bank personnel, examinations, self-assessments by the bank, and other types of on- and off-site monitoring.</p>
</blockquote>
<p>So, APRA must ensure that the members of the inquiry team can <em>at least</em> interview not only board members but also, because “culture” is involved, bank staff.</p>
<p>Groundbreaking <a href="https://theconversation.com/why-bankers-so-often-fail-to-comply-with-policies-and-regulations-82159">research</a> by Professors Elizabeth Sheedy and Barbara Griffin from Macquarie University, shows there is often a disjoint between the perceptions of senior management and front line staff on issues of risk and culture. They found senior managers have a much rosier view of how things are actually operating. </p>
<p>This also shows the APRA inquiry team need recognise that just talking to senior management is not enough to see what is actually going wrong in a firm.</p>
<p>Obviously, such wide powers must be exercised with care by the regulator. In particular, APRA must protect the confidentiality of all written and verbal material gathered during an investigation, and importantly, the sources of that information. This implies whistleblowers also need protection as part of APRA’s prudential role.</p>
<p>APRA needs to set out explicitly within the terms of reference of the inquiry that whistleblowers will be protected. Unless CBA staff are actively encouraged to provide information that is relevant not only to the money-laundering scandal but to other <a href="https://theconversation.com/banking-inquiry-findings-ask-the-wrong-questions-get-the-wrong-answers-69421">governance failures</a> at CBA, the inquiry’s conclusions will lack credibility.</p>
<h2>Why is whistleblowing an issue?</h2>
<p>Despite their <a href="https://www.commbank.com.au/about-us/opportunity-initiatives/opportunity-from-good-business-practice/sustainable-business-practices/speaking-up.html">internal policies</a>, CBA does not treat whistleblowers kindly. Like other organisations that exhibit a <a href="https://theconversation.com/au/topics/groupthink-36585">“groupthink mentality”</a>, the worst crime is not doing something wrong but rather washing the firm’s dirty linen in public.</p>
<p>The treatment of <a href="https://theconversation.com/troublemakers-and-traitors-its-no-fun-being-a-whistleblower-50755">Geoff Morris</a>, who blew the whistle on the <a href="http://www.smh.com.au/business/death-threats-and-smear-campaigns-the-lot-of-a-whistleblower-20170331-gvax60.html">CBA financial planning scandal</a>, was meant as a clear message to other CBA staff that dobbing in your mates was not to be tolerated. </p>
<p>And appalling treatment of people was not only restricted to the <a href="http://www.smh.com.au/business/banking-and-finance/cbas-insurance-arm-comminsure-told-to-reassess-rejected-heart-attack-claims-to-2012-20170322-gv4dif.html">sick and dying</a> in the case of <a href="http://www.abc.net.au/4corners/stories/2016/03/07/4417757.htm#transcript">CommInsure</a>. It also extended to the treatment of the Chief Medical Officer, Benjamin Koh, which seemed designed to send a message to other bank staff – keep your head down, or else! </p>
<p>In the CommInsure case, CBA commissioned <a href="https://www.commbank.com.au/guidance/newsroom/comminsure-releases-deloitte-report-into-claims-handling-201702.html">an “independent” inquiry</a> by Deloitte into the insurer’s claims processes which “did not identify any systemic issues relating to historically declined claims”. In an object lesson on how to write terms of reference to get the answers you want, the Deloitte inquiry has been <a href="http://thenewdaily.com.au/money/superannuation/2017/03/01/deloittes-comminsure-review-selective-and-inadequate-say-lawyers/">criticised by lawyers</a> as being <a href="http://www.smh.com.au/business/banking-and-finance/deloittes-findings-on-comminsure-dont-go-far-enough-20170228-gungnv.html">too narrowly defined</a>. This is because that particular inquiry looked only at policies selected by CommInsure and did not talk to any customers affected. Hear no evidence, see no evil. </p>
<p>A <a href="http://www.theaustralian.com.au/business/financial-services/cbas-comminsure-cleared-of-allegations-it-pressured-doctors-to-deny-claims/news-story/571e47c9841e295cb9eeae8076ce8c93">later investigation</a> by the conduct regulator, the Australian Securities & Investment Commission (ASIC) “found no evidence to support allegations that CommInsure claims managers applied undue pressure on doctors to change or alter their medical opinions”. But, interestingly, their search for evidence did not consider whistleblowing complaints. </p>
<p>APRA should ensure the terms of reference for the CBA inquiry explicitly state that the inquiry panel will have unrestricted access to all internal complaints to the bank’s Speak-Up whistleblower hotline. They should also have access to the results of any whistleblowing complaints. </p>
<p>In addition, the bank should be required to set up an additional confidential channel for reporting staff concerns on culture and governance to the independent inquiry and APRA.</p>
<p>Without clear support for whistleblowers in the terms of reference for the inquiry into CBA’s (lack of good) corporate governance, the conclusions will inevitably be tainted. APRA needs to do its job itself and head off such <a href="https://theconversation.com/apra-inquiry-into-cba-is-the-new-comedy-in-town-83105">criticisms</a>.</p><img src="https://counter.theconversation.com/content/83638/count.gif" alt="The Conversation" width="1" height="1" />
Without clear support for whistleblowers in the terms of reference for the inquiry into CBA’s corporate governance, the conclusions will inevitably be tainted.Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/704082016-12-16T04:03:02Z2016-12-16T04:03:02ZThere are a few gaping holes in the proposals to beef up ASIC<p>Treasury has finally responded to the <a href="http://fsi.gov.au/publications/final-report/">Financial Services Inquiry</a> (also known as the Murray Inquiry), <a href="http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2016/Design-and-distribution-obligations-and-product-intervention-power">releasing two proposals</a> to make the Australian Securities and Investments Commission (ASIC) “a more proactive regulator”. </p>
<p>But it is unclear that these proposals will lead to better outcomes for consumers. There a several holes in them, not least that they put the emphasis on the issuers of financial products to choose the “right” customers for their products. </p>
<p>It is questionable whether those who lost out from the sale of unsuitable products by the likes of <a href="http://www.skynews.com.au/business/business/company/2016/12/01/storm-financial-loses--17m-damages-claim.html">Storm Financial</a> and <a href="http://www.smh.com.au/interactive/2016/comminsure-exposed/heart-attack/">Comminsure</a> would be any better off had these proposals been in place.</p>
<p>Further, these proposals fail to adopt successful consumer protections used in similar product categories, and there are lots of questions about how the “right” consumer is determined.</p>
<h2>The proposals</h2>
<p>The first proposal is to require the issuer of a financial product to ensure those products are targeted only at the “right” people. For example, the right person for a high growth investment product might have a high tolerance for risk and be many years from retirement.</p>
<p>The second proposal would give ASIC the power to temporarily intervene when a product is launched that has a risk of causing significant financial or emotional cost. </p>
<p>The idea is that a product issuer should state who the product is suitable for. An issuer should state who is the ‘target market.’ They would have to consider the needs of their consumers - their ability to understand the product, and whether and how they might benefit. The issuer might be an insurance company who is liable to pay out a claim, while the distributor or seller is the person who sells insurance. </p>
<p>Meanwhile the seller should have controls to ensure the product is sold only to the right consumers, and the issuer should select sales channels and marketing strategies suitable only for that market.</p>
<p>If the product is not suitable for certain consumers then the product must be designated inappropriate for that “non-target” market. Unemployment insurance, for example, often excludes the self employed. The self-employed, then, would be a “non-target” market for this kind of financial product. </p>
<p>None of this would apply to ordinary shares or consumer credit products but would apply to margin loans, managed investments, insurance and others. It would also not apply if the product were sold by someone giving personal financial advice, as that person is already subject to a “best interests” duty towards the client.</p>
<h2>There is a lot missing</h2>
<p>The main issue with the proposals is that it is unclear how to differentiate between consumers in a way that is meaningful for both those selling the products and those buying them.</p>
<p>How is the individual consumer to know who the target market for a particular product is and whether he or she as an individual falls within that target market?</p>
<p>There are differences between an obligation to assess whether a product is suitable for a particular individual such as consumer credit, and indicating whether a product is generally suitable for a class of persons who may have some similar characteristics. </p>
<p>Issuers are tasked with assessing the risk that their product will not reach the wrong target market, and whether consumers will be able to understand complex products sold via that channel.</p>
<p>Issuers have to consider the needs of the class of consumers in the target market, their ability to understand the product, the nature of the product, and benefits to a consumer. All of this would take into account the characteristics of the target class of consumers – proximity to retirement, income, wealth, financial literacy and access to financial information. </p>
<p>But in what way do the issuers make these judgements, and are they the appropriate parties to do it? Further, there are several suitability tests used in similar products that are not included.</p>
<p>The key thing tested when it comes to applying for consumer credit is the capacity to pay, or, more accurately, the capacity to repay. On the other side is the capacity to bear a loss. It may not matter to some classes of consumers if their investments result in losses, but it will be critical to others.</p>
<p>If a person cannot pay for a type of insurance without, say, dipping into superannuation funds, should it be sold to him? If a person stands to lose the (modest) family house or retirement funds if she invests in a high risk product, should it be sold to her or to those, who with her, form the target market?</p>
<p>Marketing by class or category has been with us for a long time. We now have big data and individual access to data about ourselves. So it must be possible to fashion a better way to ensure individuals receive the product must suitable for their individual circumstances.</p><img src="https://counter.theconversation.com/content/70408/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gail Pearson is on the Executive Committee of the Consumers' Federation of Australia. She is the President of the International Association of Consumer Law.</span></em></p>Treasury has put forward proposals with huge gaps and that put the onus on the issuers of financial products.Gail Pearson, Professor, Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/669872016-10-14T05:23:06Z2016-10-14T05:23:06ZForcing insurers to reveal rejected claims a win for consumers<p>Companies offering life insurance <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-347mr-asic-issues-industry-review-of-life-insurance-claims/">will now disclose</a> the outcomes of claims, under a new reporting regime in a bid to increase transparency in the industry. This information won’t only be used by individual customers but also by financial advisers and in the case of many of us, by our superannuation fund, via a group policy. </p>
<p>If super funds consumers and financial planners use this data, it will likely place considerable pressure on insurers who have high rejection rates to improve internal practices, terms of insurance policies and better inform consumers about the scope of the insurance coverage. A history of high rejections would suggest that there is a relatively high risk the insurer would reject future claims. Awareness that an insurer has a high rate of rejections would lead to business being diverted away from them. </p>
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<a href="https://images.theconversation.com/files/141734/original/image-20161014-3982-1p478ro.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/141734/original/image-20161014-3982-1p478ro.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/141734/original/image-20161014-3982-1p478ro.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/141734/original/image-20161014-3982-1p478ro.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/141734/original/image-20161014-3982-1p478ro.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/141734/original/image-20161014-3982-1p478ro.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=425&fit=crop&dpr=1 754w, https://images.theconversation.com/files/141734/original/image-20161014-3982-1p478ro.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=425&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/141734/original/image-20161014-3982-1p478ro.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=425&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><span class="source">Australian Securities and Investments Commission</span></span>
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<p>The new disclosure regime arises from an <a href="http://download.asic.gov.au/media/4042220/rep498-published-12-october-2016a.pdf">ASIC review of life insurance claims</a>. As part of the review ASIC looked at the histories of 15 insurers that provide life, total and permanent disability (TPD), trauma and income protection insurance.</p>
<p>The review found the highest rejection of claims rates were for TPD (average declined claim rate of 16%) and trauma cover (14%). The rejections were lowest for life cover (4%) and income protection cover (7%). </p>
<p>Disconcertingly, the rejection rates vary substantially as between insurers. For TPD, three insurers had rejection rates of 37%, 25% and 24% respectively, compared to an industry average of 16%. </p>
<p>ASIC provided a comparison of rejection rates among the insurers it examined, but it kept the insurer names anonymous. For example the reporting on TPD rejections ranged widely. </p>
<iframe src="https://datawrapper.dwcdn.net/XQ02T/1/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="419"></iframe>
<p>ASIC’s reluctance to name names in this review is understandable. It found that making comparisons was difficult, partly because the insurance policies have different terms and definitions. Sometimes these differences are subtle, and at other times substantial. </p>
<p>What is heartening is that ASIC proposes reporting on the conduct of individual insurers – that is, it appears ASIC intends naming names. The sooner this is done, the better. </p>
<p>It is in the mutual interests of consumers, superannuation funds managers, financial planners who advise clients on the purchasing of insurance, and the insurance industry itself that there is an improved capacity for purchasers to make informed choices. </p>
<p>Purchasing the right insurance policy is fiendishly difficult. Making anything resembling a rational and informed choice requires knowing which future events are covered by the insurance, and the likelihood of the insurer paying up if a claim is made. </p>
<p>Finding out which events are covered by a policy often requires wading through lengthy and complex product disclosure statements (PDS). In addition, making any reliable assessments about whether the insurer is likely to pay up on a claim is next to impossible. It is somewhat ironic these uncertainties exist as a reason for insuring is to buy peace of mind, and an assurance that if things go wrong we will receive money to compensate for some or all of the insured loss.</p>
<p>The difficulties consumers face in making comparisons when shopping for the right product contribute towards an inadequately competitive marketplace and a lack of consumer trust in insurers. This in turn is fuelling public disquiet that led to ASIC review of the industry. </p>
<p>ASIC found that overall the life insurance industry accepts 90% of claims in the first instance if a decision was made to about whether or not to make a claim. For death claims, an average 96% of claims are paid. </p>
<p>ASIC is concerned, however, that in some cases claims are being rejected on technical or contractual grounds that are not in accordance with the spirit or the intent of the policy. This presents a challenge for insurers to decide how to deal with that small number of claims that may not be covered under the fine print, but under any reasonable consumer or community expectation should be paid.</p>
<p>This sort of information is already published in the United Kingdom where the Association of British Insurers publishes data on claims payouts. </p>
<p>In Australia ASIC proposes working with the Australian Prudential Regulation Authority, the insurance industry and stakeholders to establish a consistent public reporting regime for claims data and claims outcomes. ASIC will report on claims handling timeframes and dispute levels across all policy types. </p>
<p>Enhancing the capacity for consumers to make better informed choices will help build trust in the industry and a more competitive marketplace. It will also help bring greater peace of mind for those purchasing insurance.</p><img src="https://counter.theconversation.com/content/66987/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Professor Malbon receives research funding from Financial Rights Legal Centre and is an independent member of CommInsure’s internal Claims Review Panel. He is a former member of the Superannuation Complaints Tribunal.</span></em></p>Data on the outcomes of life insurance claims will not only help individual customers but also financial advisers and super funds acting on behalf of consumers.Justin Malbon, Professor of Law, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/668332016-10-12T01:17:09Z2016-10-12T01:17:09ZNew life insurance code riddled with loopholes<figure><img src="https://images.theconversation.com/files/141328/original/image-20161012-8430-bh60rh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many Australians will not benefit from the Financial Services Council's new life insurance code, Gail Pearson says.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-453204829.html">www.shutterstock.com</a></span></figcaption></figure><p>Life insurance has stood out as an industry without a code of practice when others such as general insurers have one. The latest attempt <a href="http://www.fsc.org.au/policy/life-insurance/code-of-practice.aspx">by the Financial Services Council to remedy</a> this may be a last chance for life insurers to reform, before the government forces them to.</p>
<p>The code from the Financial Services Council focuses on the relationship between the insurer and the customer and aims at high standards of consumer service; professional behaviour and industry consistency. It should complement <a href="http://kmo.ministers.treasury.gov.au/media-release/024-2015/">the legislation announced in 2015</a> to deal the problems of excessive up front premiums, remuneration practices and commissions which were incentives for insurers to churn customers through policies. </p>
<p>The code is also a result of the <a href="http://www.fsc.org.au/downloads/file/MediaReleaseFile/FinalReport-ReviewofRetailLifeInsuranceAdvice-FinalCopy(CLEAN).pdf">Trowbridge Report on retail life insurance</a> which gave the life insurance industry a final opportunity to shape its future through a co-regulatory approach, rather than being reformed by the government alone. </p>
<p>Hopefully this latest attempt at reform does not go the same way as the earlier 1995 code of practice for the industry, which lapsed in 2001. This covered similar territory to the Financial Services Council code, but made little difference to the way the industry behaved. A positive sign is this new code was developed in consultation with industry, while the last one wasn’t.</p>
<h2>What’s in the code?</h2>
<p>This latest code will again try to address problems with selling practices and the quality of advice, high lapse rates, increases in premiums and their affordability as individuals age, and the redesign and repricing of products. The <a href="https://theconversation.com/au/topics/comminsure-25556">CommInsure scandal</a> revealed further problems with outdated definitions and problems with making claims. </p>
<p>ASIC can approve these codes of practice for industry but rarely does so. This latest code is yet to be approved as well. </p>
<p>Some sectors have agreed to codes to forestall unwanted legislative change. Other codes establish higher standards of behaviour than required by law. </p>
<p>Codes are legally binding between an enterprise and a customer. This is because when an enterprise agrees to abide by a code it forms a kind of contract on the basis of this promise. </p>
<p>The very first part of the latest code of practice states that the code is binding and commits the entity to the standards in the code. The framework of the code looks at types of business rather than types of product.</p>
<p>One big omission in the code, is that it does not cover superannuation fund trustees or financial advisers, unless they explicitly adopt the code. This means it doesn’t cover a group policy where it is the employer or the superannuation fund trustee who has taken out the policy. As a result many Australians with life insurance within their super funds do not benefit at all from the code. </p>
<p>It does however apply to life products such as death, total and permanent disability, critical illness, disability, funeral, income protection, business expense and consumer credit insurance. But it does not cover products issued by a general insurer or a health insurer. This could create some confusion, for example it means that consumer credit insurance is covered by the code if provided by a life insurer, but not if provided by a general insurer. </p>
<p>Compliance with the code will be monitored by a Life Code Compliance committee. This is similar to the banking codes. The Financial Services Council and the insurers both have obligations to make consumers aware of the code.</p>
<p>Consumers can make a complaint using the code to the insurer, the Financial Ombudsman Service or Superannuation Complaints Tribunal. But if a complainant goes to a court, tribunal or other external dispute resolution body, the code no longer applies. </p>
<p>This code has an interesting take on the issue of designing life insurance products, as <a href="fsi.gov.au/publications/final-report/">discussed in the 2014 Financial Systems Inquiry</a>. It clearly states that when new policies are designed, “we will define suitable customers for the product”. This may stop the sale of products to those who don’t need them. </p>
<p>This is good but it still falls short of an obligation to sell a product that is suitable for the particular person, rather than a product that is generic for a class of targeted people. For example tailoring a policy to suit a person’s particular set of circumstances. </p>
<p>It’s a shame that the code has to set out that there will be rules to prevent sales to someone who is, “unlikely ever to be eligible to claim the benefits under a policy”. This really should be a part of the system already.</p>
<p>The obligation to review and update medical definitions is a good sign. But this applies only to policies that are currently being sold and won’t help those who are tied to policies with older definitions, that are no longer being sold.</p>
<p>The code also doesn’t have an obligation for insurers to disclose the exclusions in the policy, in plain language, to a customer before they sign a contract. This is something that really should be taken up by the industry. </p>
<p>Funeral insurance is the only life insurance product that requires a pre contract key fact sheet for offers. This type of disclosure shortcut is mandatory for home building and contents general insurance. Although there are difficulties inherent in simplification for key fact sheets this should be reconsidered for other life insurance products.</p>
<p>There are provisions for pre-sale disclosure for consumer credit insurance. Insurers are required to offer an alternative form of payment, when there is an offer of an initial loan to pay for insurance. In addition to this, insurers have an obligation to disclose the cost of loan repayments without and with the premiums and the interest payable on them. It may prevent some of the practices <a href="http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-471-the-sale-of-life-insurance-through-car-dealers-taking-consumers-for-a-ride/">revealed in the reports</a> on the problems of add-on insurance.</p>
<p>The code is a step towards a better relationship between the industry and consumers, particularly through the provisions to assist the vulnerable and helping customers make claims. It is not perfect. </p>
<p>The industry should continue to listen and take on board the virtues of the code. It can easily be changed to guide even better standards of conduct and meet newly identified problems.</p><img src="https://counter.theconversation.com/content/66833/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gail Pearson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Financial Services Council code of conduct for life insurance is the industry’s last chance to reform before the government steps in.Gail Pearson, Professor, Business School, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/579542016-04-18T00:37:47Z2016-04-18T00:37:47ZCommInsure proves the need for a banking royal commission<p>Last week, Commonwealth Bank <a href="https://www.commbank.com.au/about-us/news/media-releases/2016/comminsure-appoints-independent-members-to-claims-review-panel.html">announced</a> the creation of a Blue Riband panel to “provide an additional layer of assurance for complex claim assessment and decision-making processes” at its troubled CommInsure subsidiary.</p>
<p>CommInsure’ s CEO Helen Troup, claimed</p>
<blockquote>
<p>“We remain absolutely focused on doing the right thing by our customers and the appointment of these independent experts further strengthens our decision-making processes for complex claims.”</p>
</blockquote>
<p>The bank is cack-handedly trying to divert attention away from itself in advance of calls for a banking royal commission when parliament resumes this week. “Look – see we are trying to do things better, no need for regulators to get involved”, is the subtext.</p>
<p>The creation of this extra layer of supposed scrutiny is an admission by the bank that all was not well in the past. It completely vindicates the stance taking by Dr Benjamin Koh who was fired by CommInsure for <a href="http://www.afr.com/business/banking-and-finance/whistleblower-accuses-cba-of-pressuring-doctors-to-avoid-claims-20160307-gncc9e">rocking the leaky boat</a>.</p>
<p>Unfortunately CommInsure’s response has been to create a camel of ill-considered corporate governance.</p>
<blockquote>
<p>“Where CommInsure’s claims committee recommends a complex life insurance claim be declined, this will be referred to the Claims Review Panel. The Panel will consist of at least two independent panel members, as well as the Managing Director of CommInsure, and will provide an independent review and assessment of each claim to provide confidence that the outcomes are fair and consistent.”</p>
</blockquote>
<p>Note that the supposedly independent committee contains the CEO - hardly that independent. The murky waters are muddied even further when"</p>
<blockquote>
<p>“A sub-committee of the CommInsure Board will monitor the outcomes of the Panel. The sub-committee is comprised of independent non-executive directors.”</p>
</blockquote>
<p>Of course, this is the same Board that has been in place all along and presumably would have had oversight of the existing claims committee, which obviously was not doing its work properly. So all that has been done is to slide yet another committee into the CommBank layer cake (with at least six tiers up to the CommBank Board). </p>
<p>Accountability has been completely lost in this cake mix. </p>
<p>The remit of this Claims Review Panel has not yet been defined, but its name gives it away. It is meant to discuss “complex” claims that have been rejected by the CommInsure process. In this case read “expensive” for “complex”. The cases reported by Four Corners were pretty much open and shut, to all but CommInsure management who only saw profits going out the door. </p>
<p>The creation of the panel does not address the very serious claims that were made that medical records had been manipulated and that medical professionals had been <a href="http://www.afr.com/business/banking-and-finance/whistleblower-accuses-cba-of-pressuring-doctors-to-avoid-claims-20160307-gncc9e">pressured to change their medical opinions</a>. If true, such claims would apply not only to complex cases but run-of-the-mill cases too.</p>
<p>Unless the new panel can adjudicate on all claims, and have the power to censure staff and management it will not get to the causes of the problems but only treat the symptoms.</p>
<p>These are serious charges that only truly independent scrutiny can get to the bottom of. </p>
<h2>No level playing field</h2>
<p>For claimants, the new committee is yet another hurdle they will have to climb over to get their entitlements. As Four Corners and journalist Adele Ferguson showed, CommInsure is adept at dragging out the claims process forcing seriously ill and dying people to fund their own visits to specialists to provide additional proof of their rightful claims. This new committee just adds another hurdle to this soul-destroying process.</p>
<p>Who will represent the aggrieved customer before this new Claims Panel? Do they have to engage lawyers to represent their case, what rights will they have to question CommInsure’s management? No answers as yet, but remember that the CEO will be on the panel, with all of the resources of the bank behind her.</p>
<p>All of the members of the new “complex” Claims Panel are experts and beyond reproach as regards conflicts of interest but the appointment of one member is particularly interesting – Chris McRae. He is a board member at the Financial Ombudsman Service (FOS) and an experienced financial services lawyer.</p>
<p>This raises the obvious question, has the FOS fallen down on the job in this case? And, does the Ombudsman service have the capabilities to adjudicate on such “complex” claims? </p>
<p>If it does, then surely there is no justification, other than as a fig-leaf’, for the new panel at CommInsure. If FOS does have the necessary capability, then CommInsure should disclose how the complex claims brought to light by Four Corners were handled, if at all, by the FOS and why a new panel is needed.</p>
<p>If the FOS does have not sufficient capabilities, then surely there is need for a truly independent body to adjudicate on these issues not only for CommInsure but also across the industry? Ideally, that would be a beefed-up Ombudsman.</p>
<p>These are structural issues about how customers are served and ill-served by the financial services industry. It therefore needs a “systemic” inquiry into how the public, banks, insurance companies, regulators and the FOS <strong>should</strong> interact with one another and where accountability <strong>should</strong> lie.</p>
<p>While ASIC may have some of the powers of a royal commission to obtain testimony, it does not have the powers to critique other regulators, to address <a href="https://theconversation.com/factcheck-does-asic-already-have-the-powers-of-a-royal-commission-and-more-57666">structural issues in the financial sector</a>, or to make laws to protect whistle-blowers. Those are rightly political decisions. </p>
<p>Malcolm Turnbull <a href="http://www.smh.com.au/federal-politics/political-news/malcolm-turnbull-lashes-banks-over-trust-and-standards-following-asic-allegations-20160406-gnzjyh.html">summarised</a> the position eloquently </p>
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<p>“The truth is that despite the public’s support offered at their time of need, our bankers have not always treated their customers as they should. Some, regrettably, as we know have taken advantage of fellow Australians and the savings they have spent a lifetime accumulating.”</p>
</blockquote>
<p>By obstructing, obfuscating and bullying, the banks have ensured that a systems-wide inquiry into financial conduct can only be undertaken by a royal commission. </p>
<p>The banks have had ample opportunity to mend their ways, but they still don’t get it!</p><img src="https://counter.theconversation.com/content/57954/count.gif" alt="The Conversation" width="1" height="1" />
Last week, Commonwealth Bank announced the creation of a Blue Riband panel to “provide an additional layer of assurance for complex claim assessment and decision-making processes” at its troubled CommInsure…Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/578192016-04-14T10:00:49Z2016-04-14T10:00:49ZAllan Fels: 7Eleven franchisees ‘waging campaign’ to block workers’ compo (audio)<p>Former ACCC chairman Professor Allan Fels says a “concerted campaign” has been waged by franchisees of 7Eleven against underpaid workers to prevent them seeking compensation.</p>
<p>And he has spoken of the need for Australia’s banks to follow the example of the United Kingdom and structurally separate commercial activities from its lending and deposit taking operations, as calls for a royal commission into the sector continues.</p>
<p>Professor Fels was speaking at the Melbourne Press Club with Fairfax Media investigative journalist Adele Ferguson - whose reporting helped reveal systematic underpayment by 7Eleven and misconduct in the financial planning arm of the Commonwealth Bank - and CBA whistleblower Jeff Morris.</p>
<p>Prof Fels, a Professorial Fellow for the University of Melbourne, headed an independent panel that examined the underpayment of 7Eleven workers after a joint Fairfax/ABC investigation. He said 2000 claims were actively being processed, with 343 claims being paid $12 million, an average of $35,000 per claim. </p>
<p>He said there was a “very strong campaign by franchisees to deter them” and that there needs to be shared liability forcompensation between franchisers and franchisees: </p>
<p><audio preload="metadata" controls="controls" data-duration="127" data-image="" data-title="Professor Allan Fels speaks about 7eleven" data-size="3073969" data-source="The Conversation" data-source-url="" data-license="CC BY" data-license-url="http://creativecommons.org/licenses/by/4.0/">
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Professor Allan Fels speaks about 7eleven.
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<p>Prof Fels says in the banking sector there are some “deep conflicts of interests” that have been exacerbated by the need to prop up “too big to fail” banks. Conflicts had been intensified by banks expanding into funds management, an area which the <a href="http://www.theguardian.com/business/2011/sep/12/vickers-report-key-points">Vickers Report in the UK</a> recommended be separate from the traditional deposit taking activities of banks:</p>
<p><audio preload="metadata" controls="controls" data-duration="110" data-image="" data-title="Professor Fels comments on banking culture" data-size="2656299" data-source="The Conversation" data-source-url="" data-license="CC BY" data-license-url="http://creativecommons.org/licenses/by/4.0/">
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Professor Fels comments on banking culture.
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<blockquote>
<p>“My message to the bank would be get a lot more serious about compliance, ethics and a pro-consumer culture or basic questions will come up”.</p>
</blockquote>
<p>The event focused on the role of whistleblowers in exposing corporate corruption and also heard from consumer advocate Michael Fraser.</p><img src="https://counter.theconversation.com/content/57819/count.gif" alt="The Conversation" width="1" height="1" />
Former ACCC head comments on calls for a royal commission into the banking sector.Jenni Henderson, Section Editor: Business + EconomyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/562692016-03-17T22:25:31Z2016-03-17T22:25:31ZTrashing the brand: ANZ and CBA could pay a high price for choosing profit over people<p>The recent <a href="https://theconversation.com/comminsure-case-shows-its-time-to-target-reckless-misconduct-in-banking-55748">CBA</a> and <a href="https://theconversation.com/why-rigging-of-the-bank-bill-swap-rate-hurts-everyone-55826">ANZ</a> scandals show that the big banks fail to understand the long-term pay off from investing in their relationships with people over short-term profit. </p>
<p>ANZ stands accused of unconscionable conduct and manipulating the <a href="https://theconversation.com/why-rigging-of-the-bank-bill-swap-rate-hurts-everyone-55826">bank bill swap rate</a> (known as the BBSW) in its favour, short changing its customers and generating illicit profits. In the same vein, it has been reported that employees of CommInsure, CBA’s insurance arm, have deliberately, and in some cases illegally, removed medical details or taken action to avoid or delay the payment of claims. </p>
<p>If these allegations are true, these practices will prove damaging for CBA and ANZ stakeholders and undermine the credibility of both brands and the sector.</p>
<h2>Brands as a promise</h2>
<p>Annually, companies invest dizzying amounts to sculpt their corporate brands. The investment is made in the hope of creating positive and unique associations that collectively reflect the firm’s values and communicate who they are and what they stand for. For the past two decades, it has been increasingly understood that <a href="https://hbr.org/2001/02/are-the-strategic-stars-aligned-for-your-corporate-brand">brands act as a promise</a> – one that extends beyond customers to employees, investors, communities, partners and other stakeholders. Like any promise, evidence of a contravention can seriously damage relations with those relying on it in good faith.</p>
<p>The association that stakeholders - including customers and employees - have with a brand takes significant time and investment to cultivate, but may be eroded rapidly. The CBA <a href="https://www.commbank.com.au/about-us/who-we-are/customer-commitment.html%3Fei=mv_customer-commitment#https://www.commbank.com.au/about-us/who-we-are/customer-commitment.html?ei=mv_customer-commitment">website</a> claims they have a “range of conduct codes to ensure we provide a high level of service to our customers”. Similarly, <a href="http://www.shareholder.anz.com/our-company/profile">ANZ</a> champion a “deep understanding of customer needs”. </p>
<p>Any disconnect between the carefully crafted formal messages and the less-than-upstanding action creates a dissonance in the minds of stakeholders. Last year’s <a href="https://theconversation.com/vw-needs-massive-marketing-campaign-to-regain-consumer-trust-and-survive-48147">Volkswagen scandal</a> is a prime example of how quickly, once trust is betrayed, a much-loved brand can fall from grace. As a consequence of untoward behaviour, the shared values and beliefs are undermined destroying employer brand equity.</p>
<h2>When actions drown out a positive brand promise</h2>
<p>The employer brand promise is created both formally and informally. Typically, employers promise working conditions and remuneration contractually, but also make more tacit promises through the values espoused internally through practice and culture. Consequently, the employer brand of any organisation is not a static, immovable concept, it is continually being created through the interaction of both the firm and the employees. </p>
<p>The employer brand directly impacts on an employees’ employment experience, which has consequences for performance and overall job satisfaction. There are particular conditions that will corrode employer brand success. Both the CBA and ANZ scandals touch on at least two of these conditions; disconnect between the promised and actual employment experience and divergence between the espoused and actual values. By wearing down employee trust, these firms have actively undermined the investments they have made in attracting and retaining talent.</p>
<p>Recent research conducted at <a href="http://www.nytimes.com/2016/02/28/magazine/what-google-learned-from-its-quest-to-build-the-perfect-team.html?smid=pl-share&_r=0">Google</a> shows how trust, employee performance and engagement are related. In their long-term quest to understanding the secret of successful teams, Google found that teams who feel “psychologically safe” perform better. </p>
<p>That is, a feeling of stability and safety combined with clear goals and a culture of dependability were the essential ingredients for a team’s superior performance. For now, it’s unlikely that the day-to-day employment experience of most employees at ANZ or CBA has changed significantly, however the psychological feeling of safety is likely to be marred by the recent scandals, detracting from optimal performance, job satisfaction and productivity. </p>
<p>Their ability to attract and retain staff who can best deliver on a superior customer brand experience has also been diminished.</p>
<h2>Making amends – intention and timing is critical</h2>
<p>ANZ and CBA have approached restitution with their stakeholders differently. CBA has apologised, chief executive Ian Narev issued a <a href="https://www.commbank.com.au/about-us/news/media-releases/2016/ian-narev-ceo-statement-on-life-insurance.html">statement</a> in the wake of the controversy, taking ownership and pledging direct contact with victims. </p>
<p>In contrast, ANZ intends to defend against the <a href="https://theconversation.com/asic-v-anz-rate-rigging-case-will-be-one-of-epic-proportions-55932">claims</a>. How these opposing strategies will play out for each institution remains to be seen. </p>
<p>The Volkswagen debacle involved years of public deception; however once the irrefutable truth of its actions was exposed, the CEO resigned and <a href="http://money.cnn.com/2015/09/22/news/vw-recall-diesel/">6.5 billion euros</a> were allocated to cover the amends. The Volkswagen scandal is perhaps still too fresh for us to be able to determine the consequences for the brand, however it has been over five years since BP’s Gulf of Mexico disaster in April 2010. It was found that the disaster was <a href="http://www.theguardian.com/environment/2011/jan/06/bp-oil-spill-deepwater-horizon">preventable</a> and similar to Volkswagen, the CEO <a href="http://www.nytimes.com/2014/01/25/business/energy-environment/bp-still-struggling-to-put-gulf-spill-behind-it.html">resigned and significant funds</a> have been allocated to restitution. BP has continued to produce “corporate responsibility” reports and <a href="http://www.sustainablebrands.com/news_and_views/marketing_comms/leon_kaye/five_years_after_deepwater_horizon_can_bp_repair_its_reputa">herald</a> its position on sustainability. </p>
<p>However, a <a href="http://www.theguardian.com/world/2015/jun/14/tate-modern-climate-activists-bp-protest">protest in 2014</a> by climate activists against BP’s contributions to the Tate Modern show that the public has not forgiven or forgotten the Gulf of Mexico disaster.</p>
<h2>Brands are an important investment in social and cultural value</h2>
<p>An important question is: what can business, irrespective of industry, learn from this? Cautionary tales like this urge leadership to think beyond the bottom line: to value and cultivate a culture of trust, psychological safety and dependability to enable their employees to thrive in optimal environments. Economic value from profitable business units keeps the lights on, but social and cultural value from staff and customers keep the growth engine firing.</p><img src="https://counter.theconversation.com/content/56269/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Dissonance by the banks - saying one thing but acting in another way - will cause brand damage that will be very difficult to repair.Lara Moroko, Lecturer in Management, CEO Place Lab, Macquarie Graduate School of ManagementSarah Duffy, Lecturer, School of Business, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/560632016-03-10T04:10:14Z2016-03-10T04:10:14ZCommInsure scandal reminds us commercial forces are at play in medicine<p>A <a href="http://www.abc.net.au/news/2016-03-07/comminsure-scandal-whos-who-four-corners/7226576">scandal</a> has <a href="http://www.abc.net.au/news/2016-03-07/commonwealth-bank-dismisses-employee-with-severe-depression/7223442">emerged</a> involving the insurance giant <a href="http://www.abc.net.au/news/2016-03-07/comminsure-whistleblowersays-doctors-pressured-change-opinions/7226910">CommInsure</a>, following claims by the company’s (now ex) chief health officer that they <a href="http://www.abc.net.au/news/2016-03-05/comminsure-denying-heart-attack-claims/7218818">purposefully sought</a> to avoid paying health-related claims by using outdated disease definitions; dishonestly used medical reports; and denied claims for frivolous reasons. </p>
<p>CommInsure has also been accused of deleting medical files and putting pressure on doctors to change their diagnoses so that claims can be rejected. The public reaction to the scandal has been <a href="http://www.abc.net.au/news/2016-03-08/comminsure-scandal-cause-for-royal-commission-labor-says/7228136">intense</a>, including <a href="http://www.smh.com.au/business/banking-and-finance/deeply-shocking-turnbull-government-demands-urgent-asic-report-on-life-insurance-industry-20160307-gnd0pj.html#ixzz42Le0IJ81">calls for a royal commission</a>. </p>
<p>This reaction undoubtedly signifies anger and distrust towards the insurance industry. But it seems likely some of the public reaction also concerns the behaviour of the doctors who were employed by, or paid by, CommInsure, as they appear to have put the interests of a multi-billion-dollar company above those of seriously and terminally ill patients.</p>
<h2>Managerialism and conflicts of interest</h2>
<p>What is perhaps most striking about this case is the degree to which the doctors involved seem to get caught up in the commercial interests of the insurance company, even to a point where it compromised patient care. They appear to have become embedded in a company that was acting to serve its own commercial interests, with no commitment to honouring its civil and moral obligations to those who have purchased insurance in good faith. </p>
<p>This kind of corporate behaviour can be described as “managerialism”: where managerial techniques are used to run public and private organisations according to a predefined governance structure. Managerialism in health care places the principle of the market above other values, such as care, trust and solidarity.</p>
<p>The behaviour of the doctors involved in this scandal also brings to the fore the problem of conflicts of interest in health and medicine. The phrase “conflict of interest” refers to situations in which there is a tension between “primary” values or commitments (interests) and other “secondary” interests.</p>
<p>For a clinician, the primary interest is patient well-being. A secondary interest is anything that gets in the way of the doctor’s commitment to promoting the patient’s best interests. This can include, for example, the desire to fulfil the wishes of an insurance company that employs or pays the doctor to provide “independent” medical advice.</p>
<p>Potential conflicts of interest are ubiquitous in medical practice. This is not because most doctors are corrupt. Rather, it’s because modern medicine is a complex web of relationships that extends well beyond the doctor-patient relationship.</p>
<p>Increasingly doctors have relationships with patients, their family members and employers, research funding bodies, government agencies and pharmaceutical, device and diagnostics companies. They also have personal interests, which may include the need to earn a salary, care for their family, maintain a practice and advance their career.</p>
<p>In some cases, doctors might be employed by entities whose interests do not always align with those of patients. For example, doctors are employed by insurance companies, sporting clubs, prisons and refugee camps, as well as by many major companies as “occupational medicine” specialists. Even doctors employed in public and private hospitals have to balance their commitments to their patients against the demands of the organisation.</p>
<p>While all of these relationships and activities are legitimate (doctors do not work in a vacuum, and nor would we want them to) and doctors are usually able to strike a balance among various competing interests and commitments, the fact remains that anything that could undermine a doctor’s commitment to their patient’s welfare is potentially dangerous.</p>
<p>Recent concerns about the standards of health care in <a href="http://www.abc.net.au/news/2014-09-05/rau-detention-healthcare-tossed-overboard/5722036">Australia’s immigration detention centres</a>, prompting the courageous stand that some <a href="https://www.mja.com.au/insight/2013/48/serious-gaps-detainees-health-care">health care professionals have taken</a> against detention, show how health care can be compromised by competing interests. </p>
<p>They also show how important it can be for health care workers to maintain their integrity and commitment to patients, and to advocate for them, even when this comes at a personal or professional cost.</p>
<h2>With great power…</h2>
<p>Doctors have immense power: to diagnose, to prognosticate, to prevent and to treat. When this power is abused, the consequences may be extreme. The CommInsure doctors arguably misused their power to diagnose and to prognosticate. </p>
<p>Diagnoses and prognoses <a href="http://www.radionz.co.nz/national/programmes/ninetonoon/audio/201787726/the-power-of-diagnosis">are not just words</a>, they’re labels with enormous social currency. They have the potential to give meaning and legitimacy to a patient’s symptoms, predict and enable patients to plan for the future and determine whether a patient will (among other things) receive an insurance pay-out; be given sick leave; be allowed to resume his or or her sporting career after an injury; be given government-subsidised access to a medicine; or be removed from incarceration on medical grounds.</p>
<p>Because doctors are so powerful, and because enactment of these powers can have such major consequences for vulnerable patients, it is essential doctors <em>always</em> use their skills and authority to act in the patient’s best interests. </p>
<p>Any relationship that has the potential to get in the way of this primary commitment needs to be navigated with the utmost care. This obligation remains even when doctors work for, or within, an industry that appears to have lost its moral compass.</p><img src="https://counter.theconversation.com/content/56063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wendy Lipworth receives funding from the National Health & Medical Research Council. She is affiliated with DIA.</span></em></p><p class="fine-print"><em><span>Ian Kerridge receives funding from the National Health and Medical research Council for research into high-cost drugs. He has also previously been a member of the Royal Australasian College of Physicians Working Group that development Guidelines for Interactions with Industry.</span></em></p><p class="fine-print"><em><span>Narcyz Ghinea receives funding from the National Health and Medical Research Council.</span></em></p>Because doctors are so powerful, it is essential they always use their skills and authority to act in their patient’s best interests.Wendy Lipworth, Senior Research Fellow, Bioethics, University of SydneyIan Kerridge, Professor of Bioethics & Medicine, Centre for Values and Ethics and the Law in Medicine, University of SydneyNarcyz Ghinea, Research Associate, Centre for Values, Ethics and the Law in Medicine, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/557482016-03-07T22:38:36Z2016-03-07T22:38:36ZCommInsure case shows it’s time to target reckless misconduct in banking<p>Behind this week’s expose by Fairfax Media journalist Adele Ferguson and the ABC’s Four Corners program of the <a href="http://www.theage.com.au/interactive/2016/comminsure-exposed/heart-attack/">insurance claims refused by Commonwealth Bank insurance arm, CommInsure</a>, lies a bigger problem in the way the sector is regulated. </p>
<p>Ferguson has stopped the music and regulators APRA and ASIC have got to stop passing the insurance regulation parcel between them. It’s time Australia got serious on “<a href="https://theconversation.com/asics-fashion-faux-pas-44590">conduct risk</a>” - the reckless misconduct in the management of a bank ASIC wants to regulate against.</p>
<p>The <a href="http://www.abc.net.au/news/2016-03-07/comminsure-whistleblowersays-doctors-pressured-change-opinions/7226910">Four Corners</a> program exposed a disturbing culture within CommInsure that, according to the insurer’s ex-Chief Medical Officer, Dr Benjamin Koh, betrayed a drive for profit above people, the antithesis of the message given by Commonwealth Bank CEO, Ian Narev. </p>
<p>There is an inherent conflict of interest in insurance. The more promises (insurance policies) an insurance company makes, the more profit it makes. The more promises (claims) it keeps, the less profit it makes. There is an inbuilt inclination then for an insurance company to make lots of promises, and to keep as few of them as it possibly can. </p>
<p>When buying life insurance people often do so content in the knowledge that, if the worst were to happen, the insurance company would step in to protect them. But the reality can be very different. </p>
<p>In <a href="http://www.smh.com.au/interactive/2016/comminsure-exposed/heart-attack/">one case</a> highlighted by Ferguson, the CommInsure claims management department admitted the claimant had indeed suffered the serious heart attack he had claimed, but was not covered under the Total Permanent Disability (TPD) policy he been paying for much of his adult life. CommInsure claimed it was just the “wrong sort” of heart attack. Instead of A$1 million, he got A$25,000.</p>
<p>How could such a tragic misunderstanding have happened? </p>
<p>Quite easily really. For example, the <a href="https://www.commbank.com.au/personal/apply-online/download-printed-forms/CIL70-PDS-290310.pdf">Product Disclosure Statement</a> (PDS) for “CommInsure Protection” runs to some 136 pages and while not in the finest of fine prints is not exactly easy to comprehend. The PDS dedicates 25 pages purely to definitions. While a valiant attempt has been made to introduce some “plain English’, the document contains so many weasel words and get-out sub-clauses that even experts disagree on the interpretation.</p>
<p>In <a href="http://www.smh.com.au/interactive/2016/comminsure-exposed/mental-health/">another example</a>, an employee of the Commonwealth Bank suffered a debilitating post-traumatic stress disorder after a violent attack. The bank’s own medical officer <a href="http://www.smh.com.au/interactive/2016/comminsure-exposed/documents/attwater_retired.pdf">recommended</a> the employee be retired from the bank and the general workforce due to ill-health. As a valued employee, the person assumed he would be covered by the firm’s total and permanent disability (TPD) policy, which was issued by CommInsure. But CommInsure interpreted it differently and argued the ex-employee might be cured if he underwent treatment by a specialist. </p>
<p>Catch 22 – you just might be cured by an expensive psychiatrist but, since you are not employed, you cannot afford it and, until you can, we won’t pay up.</p>
<h2>Insurers have all the power</h2>
<p>With a claim, an insurer always has the upper hand since, after all, they deal with stroppy (if sick) claimants every day. After stonewalling for a bit, they often direct the complainants (if they have not died yet) to the Financial Ombudsman Service (FOS), a superb (if overworked) independent arbitrator in financial disputes. </p>
<p>At this point the claimant is usually ill, stressed, possibly not getting an income and easy prey to the promise of a quick settlement. Most claimants fold and take the insurer’s offer. But some of those with ticker (even if damaged) keep going and sometimes get a result by working with the Ombudsman. </p>
<p>Take the real case study on page 82 of the latest <a href="https://www.fos.org.au/custom/files/docs/20142015-fos-annual-review.pdf">FOS Annual Review</a>. </p>
<p>The claimant in that case suffered a lower back injury in 1999 which was accepted as catastrophic by the insurer but, in 2013, the insurer suddenly decided that "enough was enough” and cut off the payments. The Ombudsman found the insurer had been heavy handed and was “not entitled to refuse the claim because the applicant continued to meet the definition of total disability under the policy”. </p>
<p>The FOS says there has been a surge in TPD claims in recent years - the problem is not going to go away. The Ombudsman says claims refusals (such as those uncovered by Fairfax/ABC) are not uncommon:</p>
<blockquote>
<p>“Of continuing concern is the failure of FSPs to use correct policy provisions and to rely on more recent versions with less beneficial terms.”</p>
</blockquote>
<p>The Four Corners program reported that after the claims of mismanagement and possible mistreatment of dying people were put to the bank, a number of the claims were settled. But what about the other claimants that were knocked back when Dr Koh found they should not have been? The scandal is likely to grow.</p>
<h2>Past lessons</h2>
<p>The expose by Fairfax/ABC is reminiscent of the early days of what became known as the Payment Protection Insurance (PPI) <a href="http://search.proquest.com/openview/5e18cbe58b90a1b96c619dd899681879/1?pq-origsite=gscholar">scandal</a> in the UK. </p>
<p>For years, journalists and consumer advocates had been complaining about insurance companies reneging on income protection policies. Stung into action by repeated criticism, the UK financial regulator undertook an inquiry into the industry. The regulator found systemic issues related to misselling of PPI policies by the major banks, which resulted in real hardship to many insurance claimants. </p>
<p>In what proved to be one of the most spectacular own goals in banking history, the British Banking Association (BBA) decided to fight the regulator in court, but was sent packing and told to make redress to all of the customers who had been sold shoddy PPI policies, up to 20 million of them.</p>
<p>It was an expensive mistake. At the <a href="http://www.theguardian.com/money/2015/nov/26/fca-unable-to-estimate-future-ppi-cost-to-banks">latest count</a> the scandal has already cost the UK banking industry more than $50 billion (yes billion) and climbing. Even NAB was caught up in the scandal as it had to <a href="http://www.theaustralian.com.au/business/financial-services/nab-bid-to-exit-uk-boosted-as-fca-mulls-ppi-claims-deadline/news-story/bb351cb6e3022079ccd80f7d046241a9">guarantee the future losses</a> from PPI claims when it sold its last <a href="https://theconversation.com/national-australia-bank-30-years-of-strategy-failure-55159">overseas lemon</a>, Clydesdale Bank.</p>
<p>One of the major problems that caused the PPI fiasco to build up was that there were no mechanisms for recording complaints across the industry. Customers were complaining but no-one was listening. When the floodgates opened by the rejection of the BBA case, the UK FOS was <a href="http://www.financial-ombudsman.org.uk/news/updates/complaints-data-1july-31dec-2015.html">and still is</a> deluged with complaints. The market for PPI has collapsed and banks and insurers are under increasing regulatory pressure to <a href="https://www.the-fca.org.uk/fair-treatment-customers">treat their customers fairly </a>(TCF), suffering fines if they do not.</p>
<p>CommInsure says it pays some 22,000 claims per year out of 4 million customers. But it is not the number of paid claims that is important, but the number of customer complaints about those claims. The systems to record and analyse complaints were missing in the UK and the banks’ shareholders paid dearly for it.</p>
<p>Back in Australia, Peter Kell, deputy chair of ASIC, told Fairfax/ABC that ASIC has warned the life insurance industry to lift its game. </p>
<blockquote>
<p>“We recognise that for too long there have been conflicts of interest in the way that life insurance is distributed… that the products have not necessarily been designed with the consumers’ needs in mind.”</p>
</blockquote>
<p>ASIC <a href="http://asic.gov.au/about-asic/corporate-publications/newsletters/asic-market-supervision-update/asic-market-supervision-update-previous-issues/market-supervison-update-issue-57/">defines</a> “conduct risk” as the risk of: </p>
<blockquote>
<p>“inappropriate, unethical or unlawful behaviour on the part of an organisation’s management or employees.”</p>
</blockquote>
<p>According to the whistle blower, Dr Koh, medical records were removed from the claims system, which may have been illegal; the actions were, as admitted by CEO Ian Narev, inappropriate; and if there was a deliberate policy of delaying claims, as indicated by the Fairfax/ABC report, then the actions were clearly unethical. As good an example of conduct risk as a regulator could find.</p>
<p>However, ASIC has not put any meat on the bones of its definition since the focus on conduct risk was announced last July. This may be because the regulator has been flat out chasing banks for <a href="https://theconversation.com/asic-finally-pulls-the-bbsw-trigger-on-anz-55766">manipulating the BBSW benchmark.</a> There is conduct risk in all sectors of banking, and ASIC must get the resources needed to tackle them all.</p><img src="https://counter.theconversation.com/content/55748/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pat McConnell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If ASIC gets its way and ‘conduct risk’ is regulated, banks might get serious about systematic problems.Pat McConnell, Honorary Fellow, Macquarie University Applied Finance Centre, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.