ASIC is invited to review the use of general exclusions by life insurers

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The Australian Securities and Investments Commission (ASIC) has been asked to investigate life insurers that use blanket exclusions based on people’s mental health.

A Public Interest Advocacy Center (PIAC) report titled ‘Mental health discrimination in insurance ‘ concluded that the use of general mental health exclusions was incompatible with the obligations of insurers and therefore could be illegal.

Problems reported with policies, including refusals to offer insurance, offers with broad exclusion for mental health or insurance without exclusion for mental health but with unreasonably high premium charge.

Other issues included automatic denial of claims by insurers after disclosure of a mental health issue, assessing claims without obtaining adequate information, failing to consider a mental health history, and attribution of a mental health problem without medical evidence.

“In PIAC’s experience, these problems occur most often in the life insurance market. Systematic denial of coverage or the use of extremely broad mental health exclusions is particularly prevalent with respect to income protection and TPD [total and permanent disability] insurance, ”the report says.

“This happens for people who disclose a history of a diagnosed mental health disorder, as well as for people who disclose symptoms of a mental health disorder but have never been diagnosed.

“The mere disclosure that a person has a mental health problem or a history of a mental health problem usually leads an insurer to limit or deny coverage, regardless of factors unique to the person’s condition, including the severity of the condition, the treatment a person receives for the condition (indeed, that a person receives treatment is often interpreted by insurers to mean that the condition is serious) and whether or to what extent the ailment has an impact on the functioning of the person.

The Virgin Money, Medibank and HCF policies were designated by the organization as containing standard policy terms that excluded benefits for mental health disorders or illnesses while AAMI, ANZ, Suncorp, Insuranceline and RACQ had changed their policies to remove the exclusion. Several others had removed it for new customers, but it may still apply to existing customers.

The findings implied that people might be discouraged from seeking early intervention for their mental health issues if they were concerned it would affect their insurance policies. This was particularly critical as more than one million mental health-related services were processed through Medicare in the four weeks leading up to April 25, 2021.

“PIAC is concerned that these practices take an approach that penalizes and discourages people from seeking preventive and early medical assistance to proactively manage their mental health,” the report said.

“It also undermines government-funded campaigns and programs that encourage people to take active steps to stay mentally healthy and to seek help to do so.”

He noted that ASIC had “not played an active role” in enforcing laws on discrimination against insurers and urged him to conduct a review.

“ASIC should conduct a review to determine if blanket exclusions for mental health issues continue to be used in life insurance policies. The life insurance code of practice should include a commitment not to design and sell products that incorporate a general exclusion of mental health into the general policy conditions, ”he said.

“ASIC should investigate, as recommended by the Productivity Commission, the practices of the life insurance industry regarding the provision of services to people with mental disorders. The survey should take into account mental health discrimination in underwriting insurance policies and adopt a survey model similar to that used by VEOHRC [the Victorian Equal Opportunity and Human Rights Commission] in its survey of travel insurance.


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