ASIC recently issued its review of the life insurance industry following several well-publicised cases of poor handling of claims. While the report has attracted considerable attention, one important aspect has been overlooked.

Life insurance is undoubtedly a valuable product for many Australians – providing a financial lifeline at a time of need. And, as the Australian Securities and Investments Commission’s (ASIC) Deputy Chair Peter Kell explains, not being able to successfully claim on a life insurance policy can be “financially devastating for the consumer and/or their family.”

Denial rates of up to 37%

Despite the media hype, ASIC found around 90% of life insurance claims are paid in the first instance. Certainly, some types of policies have attracted higher denial rates. These tend to be the more complex areas of cover.

For instance, ASIC found the rate of declined claims was highest for TPD cover, where on average, 16% of claims are declined – rising to 37% with some insurers. Trauma cover has an average denial rate of 14%.

Part of the problem may lie with outdated definitions of particular medical conditions though ASIC found this accounted for only a small proportion of rejected claims.

Non-advised consumers are most at risk

One particular ASIC finding has attracted surprisingly little media interest. It turns out that the channel consumers use to purchase cover can impact the likelihood of their claims being rejected. Significantly, consumers who purchase cover through an advisory channel are less likely to have their claim denied.

ASIC found the declined claim rates were higher for non-advised policies (12%) compared to retail (7%) and group (8%) policies.

These findings beg the question, should an important product such as life insurance and associated personal insurances be available as an “off the shelf” purchase, when the distribution channel can have such a significant outcome on claims?

No reference to personal needs

As ASIC notes, life insurance distributed directly to consumers – often via online or phone marketing, usually involves no personal advice. Rather, general product advice or factual information about life insurance and its benefits as a whole may be provided.

This finding is a cause for concern as 3.9 million non-advised policies are held in Australia – a figure that grows annually. Rounding out the picture, 4 million retail policies are held, with about 14 million group policies making up the balance.

Price doesn’t always define the best deal

Australian consumers are embracing the notion of shopping around online to get a better deal. That may be fine when it comes to a new set of golf clubs. But purchasing key financial products, which can be complex, without reference to personal needs or the guidance of experts, is a very different matter.

Either way, ASIC’s findings may be just the beginning. It may be that over the course of time, consumers realise that like a good suit, a tailored insurance policy provides the best fit. And that’s where true value lies.