INSIGHTS: Investigating an insurance claim – damned if you do, damned if you don’t

March 21, 2016

There is no doubt that one of the biggest news headlines over the past week has been the “CommInsure scandal” – that is the allegation that the CBA’s life insurer has declined, or delayed, claims based upon, amongst other things, out of date policy definitions and “manipulated” medical reports.  I don’t propose to comment on those allegations as they will no doubt be thoroughly investigated and reported upon. What I do wish to raise for discussion are some of the issues surrounding investigating an insurance claim.

Insurers are often portrayed as only slightly above used car salesmen (apologies to car retailers!) and experts at drafting fine print. However, after working with insurers for almost 20 years, the vast majority are anxious to resolve claims as quickly and as efficiently as possible. It is generally not in an insurer’s interest to have a claim open for a long period of time, or conduct unnecessary investigations (after all then they just have to pay the lawyers more). Nor is it in an insurer’s interest for insureds to have a negative claims handling experience – insurers need happy customers, happy customers renew their policies and that is how insurance companies generate income.

However, insurers still run a business, they are responsible to shareholders, boards and regulators. It has been said that about 10% of all claims involve some element of insurance fraud; be it exaggerating a legitimate claim, completely fabricating a claim or failing to inform the insurer of information relevant to the nature of the risk being insured. The total cost of that fraud is estimated at approximately $2 billion per annum, which apparently increases the cost of an average policy by about an extra $75. If insurers don’t investigate claims thoroughly the cost to all of us would surely be much higher.

One issue that the “CommInsure scandal” has raised is the extent and manner in which those investigations are carried out; for example, the use of surveillance.

  • Surveillance is expensive. In any one claim it is often limited to between 5 and 10 hours over a period of several days. It is used sparingly, and usually only in claims in which a red flag has been raised in relation to an alleged inability to work or carry out certain activities of daily living (generally the two largest components of a claim) – if a claim of that nature is made it is often difficult to independently verify the claim other than by surveillance. Although, as I have recently written, the uptake in social media has the potential to alleviate that difficulty.
  • Surveillance is only of any benefit if the footage is likely to be persuasive to a Judge. Therefore an insurer is unlikely to incur significant expense on extensive surveillance if the claimant’s condition fluctuates or is of a minor nature. The most common explanation heard in court when surveillance is shown of a claimant doing something that they tell doctors is no longer possible  is, “yes, but the next day I couldn’t get out of bed”. There is little point in spending the money on surveillance unless there is a real chance that the surveillance will be useful.

Trust also needs to be placed in the ethical conduct of the vast majority of the professionals that are involved in the claims process. Medical experts are independent and must abide by the Expert Witness Code of Conduct. The lawyers representing the insurance companies owe a duty to the Court to act honestly, ethically and beyond reproach. Further, lawyers suggesting fraud or serious misconduct by a party without sufficient evidence to do so will be criticised by the Courts (see Srgo v Australian Associated Motor Insurers). Most will not suggest a claim is exaggerated or fabricated without good reason to do so.

While I have no knowledge of the circumstances surrounding the CommInsure incident, and accept that there may have been instances in which insurers’ investigations have over stepped the mark, in my experience the majority of claims are handled fairly and expeditiously.

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