ASIC warns life insurers over ‘unwarranted’ surveillance

The corporate watchdog has raised concerns about the methods insurance companies use when investigating people who made have mental health claims, after a review found surveillance of some customers may have been unwarranted.

The Australian Securities and Investments Commission (ASIC) also said some insurers still appeared to be trying to avoid paying legitimate claims by going “fishing” for information that a customer may not have disclosed.

ASIC on Friday released the findings of a review into how insurance companies dealt with claims for disability income insurance, which provides cover to people who can no longer work because of illness or injury.

ASIC deputy chairman Karen Chester said surveillance of customers by insurance companies should be a “last resort”.Credit:Dominic Lorrimer

The 2018 royal commission into financial services misconduct highlighted cases of insurers spying on their customers who had made mental health claims, and a key topic in ASIC’s review was the “physical surveillance” of customers.

ASIC’s research, based on a review of nearly 4800 claims last year, suggested some insurers may still be putting customers under surveillance more than was warranted.

The report said physical surveillance – which can include using external investigators – was used in 10 mental health claims, and ASIC believed the surveillance “may have been unwarranted in half of these cases”.

ASIC said that across the entire study, which was wider than mental health claims, insurers used surveillance in 57 cases, or about 1 per cent of claims. The regulator believed surveillance may have been unwarranted in 10 of these cases because the insurer had not shown that other investigative methods had been exhausted.

The watchdog also highlighted an issue known as “fishing” — where an insurer actively looks for information that a customer did not disclose to avoid paying a legitimate claim.

It said five unnamed insurers appeared to start these non-disclosure investigations simply because a claim had been made within three years of a policy being written or renewed, and this heightened the risk of “fishing”. ASIC said 40 per cent of these non-disclosure investigations related to mental health non-disclosure.

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