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Parliamentary Joint Committee on Corporations and Financial Services
18/08/2017
Life insurance industry

SCOFIELD, Mr Nicholas, General Manager, Corporate Affairs, Allianz Australia Insurance

WHITAKER, Ms Nadine, Head of Life Insurance, Allianz Australia Insurance

CHAIR: I reopen this hearing into the life insurance industry by the Parliamentary Joint Committee on Corporations and Financial Services. The committee welcomes Allianz Australia. I remind committee members and witnesses that, while this is a public hearing, care should be taken to protect the privacy of individuals and that arguments should be made without naming individuals. I now invite you to make a short opening statement. At the conclusion of your remarks, I will invite members of the committee to put questions to you.

Mr Scofield : I'll just give you a brief outline of our life insurance business in Australia. Allianz Australia is, in the main, a general insurance company. We, like the legislation and the licensing, split the insurance world into more or less three parts—life insurance, health insurance and general insurance, often called property and casualty insurance. Our main business is general insurance. We started a direct-only life insurance business about 10 years ago. We are not in group insurance. We are not in retail-advised insurance. It is direct business only. It is a very small business in terms of the Allianz Australia business.

To put it in some perspective, our premium income from our general insurance business is around $5 billion a year and the premium income from our life insurance business is around $20 million per year. So it's a very small operation. As I said, it started 10 years ago with one policy on one day and it has grown organically since then. That's another way of saying, I guess, that we are a very, very small player in the life insurance sector. We have about 2.4 per cent market share in the direct life insurance sector. When you add in retail-advised and group life insurance, it's not quite four-fifths of five-eighths of nothing but it is fairly small.

CHAIR: So you don't do any group insurance?

Mr Scofield : No. I might leave it at that, to give you an idea of which part of the life insurance distribution market we're in and in the broader context of our overall business.

CHAIR: As you explained, it's probably a small part of your income. But, still, you're involved in it and it is good that you've come along today to talk to us about it. I guess you've been listening to the hearings and seeing the direction the hearings are taking. Do you have any views with regard to the FSC code and where your company is at in achieving that code or whether you're already there?

Mr Scofield : We certainly welcome the FSC code. On major issues like, for example, key definitions of things like heart attack and stroke, we have not had to make any changes to our existing definitions to comply with the code. We're already compliant with many of the other aspects of the code in terms of training and claims and that sort of thing, particularly because a lot of our systems are driven around the general insurance business. The General Insurance Code of Practice has been around for many years and it has a lot of similar obligations in terms of hardship provisions, claims handling time frames and many other things. So, other than some process changes at the margin, we haven't really had to change much of our business to comply with the new life insurance code. But we certainly welcome it as part of the overall regulatory framework.

CHAIR: Would I be right in assuming that, because you have such a small book in that area, it is just an add-on for existing clients in other areas of insurance?

Mr Scofield : In part, that's right. One product in particular that our general insurance was involved in is a hybrid product. It is credit insurance, which is a product that contains components of general insurance and components of life insurance. We previously used to have the life insurance provided by another life insurance company and we provided the general insurance part and we put it together to provide that hybrid product. At one point it came to our thinking that, instead of giving that premium away to another insurer, we could bring it in house and underwrite the whole product itself if we got a life licence and moved into providing that. But, as a part of that consideration, we also then decided that we go into pure life insurance, if you like—term life, critical illness and what we call permanently unable to work, which others call total and permanent disability. In a sense, what mainly makes up the life business are the standalone, direct life insurance sales.

Mr VAN MANEN: Thanks, Mr Scofield, for your opening comments. I am interested in your description for your total and permanent disablement product being totally and permanently unable to work.

Mr Scofield : Permanently unable to work.

Mr VAN MANEN: It is probably a more adequate description than others. Is that a pure TPD product or does it have components of income protection in it as well? Is it a lump sum product?

Mr Scofield : It is a lump sum product. The reasoning for that terminology was we thought it was a little more straightforward and a clearer terminology for what the product provides cover for. It is a lump sum product, yes.

Mr VAN MANEN: Do you have an income protection product, or just trauma, TPD and life?

Mr Scofield : That's right. In our life business we refer to 'critical illness', which is, I think, described by others as trauma. But it is those three components.

Mr VAN MANEN: Does your trauma policy cover roughly, the 30 or 32 things that most other policies cover, or is yours more focused on, say, the top four or five that account for the majority of claims?

Mr Scofield : I guess it depends how you break it down, but the main areas are heart attack, stroke, cancer, degenerative diseases, cardiac surgery and major organ failure. Within those categories, there are four or five different degenerative diseases. There are four major organ-failure covers. There are six broad categories, but it is broken down into particular cancers or particular organs, and it becomes a bigger number.

Mr VAN MANEN: In testimony from previous parts of this inquiry and discussion we've had with other insurers, one of the questions that's been raised by other members of the committee is the request for access to medical information. I note with interest that with your products, when the customer signs the authority, it allows for access to any medical information about the customer. Why is the authority not limited to information that's relevant to the claim?

Mr Scofield : The reason for that is—

Mr VAN MANEN: Sorry, let me qualify that: on the assumption that they're being fully underwritten at the time of application. Or is that not the case?

Mr Scofield : That's the case, but in the direct market the underwriting is of a different nature than what it is in, for example, retail-advised. So one of the attractions of direct is that the application process is a very short and streamlined one. We do not seek authorities for any medical information at the time of the underwriting.

Senator WILLIAMS: You don't seek any medical information?

Mr Scofield : Sorry, I mean, authorities for doctors and health information and for the—

Mr VAN MANEN: But you ask them to complete some basic medical questions on—

Mr Scofield : Some basic medical questions about their health, previous conditions and their overall health status. Depending on how you answer the questions, the question set is 12 questions long. So it's much different to a retail-advised product, where the sums insured can be much higher and people may be required to have blood tests to provide medical information from their doctors and that sort of thing. So the underwriting is done based on the answers to those questions about people's health and their medical and health histories. When it comes to making a claim, the medical information is being obtained to, generally, confirm the accuracy of the questions that they answered. For example, they might have answered 'non-smoker'—not that that might be in medical information if they've never had medical issues. But if they've answered, for example, questions about high cholesterol and they've said 'no' then when it comes to a claim—because we also don't have, generally, pre-existing conditions exclusions—the use of the medical information there is to confirm the answers that they've provided upfront to ensure that there was no fraudulent non-disclosure at the time of underwriting the policy. Because if those questions were answered—

Mr VAN MANEN: If those questions are answered truthfully and you have a further question about a particular answer, you could exclude a certain medical condition or have an exclusion on the policy based on the initial answers. Is that correct?

Mr Scofield : No, I wouldn't put it like that in terms of an exclusion. An example of what that medical information might inform us of is that there are definitions of a heart attack and there are definitions of a stroke. So if someone is making a heart attack claim then we need the medical records relating to that—the treatment and the diagnosis of that to—

Mr VAN MANEN: But that's not what your authority is saying. The authority is saying 'any medical information', whereas the answer you have just given is more along the lines of my question that you'd only be asking for medical information in relation to that heart condition or that heart attack?

Mr Scofield : That was the example of that particular claim. But, as I said, there are still a number of questions that they have answered at the time of application about their medical history that we would want to confirm to make sure that they weren't misrepresenting the facts.

Mr VAN MANEN: So, would it be fair to say that there's a reasonable possibility that, given the additional level of risk that you take onboard, the cost of, say, a term life policy through Allianz is potentially higher than if it is a fully underwritten policy?

Mr Scofield : That could more depend on things like the level of the sum insured and also, more particularly, the nature of the individual themselves. Not obtaining that sort of level of detailed information from the individual at the time of application about their specific health status and conditions means that in the direct model you're not underwriting at that some degree of specificity and, as a result, it is probably fair to say that there is more of an averaging of the premiums in the underwritten model because we're seeking a lot less information and we're also relying on the person to answer honestly and truthfully. But whether it's cheaper for one particular person or another between those two channels can also depend on things like their age and their health status and that sort of thing.

Mr VAN MANEN: A final question: one of my concerns about this direct space is the potential for personal advice to be provided. What are the steps that you take as a company to ensure that any clients in the process of the interaction with you in obtaining insurance are not being provided personal advice, and what are the steps that you take in the event that somebody has been or potentially has been given personal advice?

Mr Scofield : Our direct business operates through two channels. One is through the internet, online application, and the other is through call centre application. Seventy per cent of the applications are online. There's no capacity, obviously, in that process for any advice at all. For the call centre operators, they are effectively taking the customer verbally through the online application process. They've all been compliance trained, and it is a heavily scripted discussion. We, as an insurer, even in the general insurance space, do not provide personal advice in any of our lines of business. So, the call centre staff are very aware of what the boundaries are between general advice and personal advice. As I say, the scripting that surrounds the online application, even though people ring up, is essentially the same process as if they had gone on the internet and done it themselves. The scripting around that is very contained to ensure that people don't stray off into discussions that may cross that barrier into personal advice.

Senator WILLIAMS: Thank you, Mr Scofield and Ms Whitaker, for being here. Just with respect to your direct insurance, how do you market it?

Mr Scofield : Television advertising.

Senator WILLIAMS: I've never seen one!

CHAIR: I think you have great brand awareness.

Senator WILLIAMS: That's your main marketing, in television advertising?

Mr Scofield : Television and radio, I would assume. For most products, sometimes there is direct mail out, but we're not going through intermediated channels, if you like—so financial planners, and those sort of things.

Senator WILLIAMS: And your website?

Mr Scofield : And the website, yes.

Senator WILLIAMS: When you market, Mr Scofield, do you market wholly and solely under Allianz, or do you have other companies you own that may handle your products as well?

Mr Scofield : In the life insurance space, we only sell under the Allianz life insurance brand.

Senator WILLIAMS: When it comes to conflict in claims or disputes, how do you settle those? Do you have an in-house dispute system or do you go to some sort of mediator? How do you solve your disputes, assuming you have some?

Mr Scofield : Occasionally we do. It is normally a two-step process, depending on how far the customer wants to take it, or potentially three steps, I guess. But internal dispute resolution is the first stage of looking at any sort of dispute that a person may have. If they're unsatisfied with the outcome still, after that, then the Financial Ombudsman Service is the independent external dispute resolution body that we use. And then, as you'd be aware, while the insurer is bound by the outcome of a false decision, the customer is not. If they're still unsuccessful, they still retain their rights to take the issue further through legal action.

Senator WILLIAMS: But under the FOS situation as we currently have it, $309,000 is the maximum amount of compensation FOS can pay. Are you aware of that?

Mr Scofield : Yes.

Senator WILLIAMS: On July 1 next year a new system will start. Are you familiar with how that is going to work?

Mr Scofield : Broadly, yes.

Senator WILLIAMS: It will handle higher claims. I know it will as far as loans and investments go. I have to tell you now, I have handled a lot of financial complaints since I've been in the Senate for nine years, from all sorts of organisations, but I have never had a complaint from Allianz. Why?

Mr Scofield : Probably because our business is so small compared to all the others. I mean—

Senator WILLIAMS: I thought you might say you do everything perfect!

Mr Scofield : I wish we could say that, but the fact is we sometimes decline claims. The most common reason is fraudulent non-disclosure, which is not just an inadvertent, 'Oh, gee, I forgot about that.' It is quite a high threshold established by the courts. So we do have customers who are not satisfied with the outcome, because we have claim declines. But with the size of our business, for example, we're talking about three last year. But any of those people have the opportunity to go through IDR and to the Financial Ombudsman Service and that sort of thing. There are very small numbers involved, so that probably assists us.

Senator WILLIAMS: And so, you only deal direct with life insurance, and everyone you insure directly is underwritten—is that correct?

Mr Scofield : Yes.

Senator WILLIAMS: I think that's a very good thing, because one of my big concerns is that people are not underwritten in some cases with direct insurance. They put their head on their pillow at night thinking, for example, 'Well, if I happen to fall off my perch, then my wife and my kids are protected and the house will be paid for.' Only they find they don't have insurance later on when the medical checks and the history has been brought forward. So it is good to hear that your direct insurances all are underwritten. I think that's about it from me, Chair.

CHAIR: Is it? You've been let off lightly!

Senator WILLIAMS: But I am wondering whether Ms Whitaker is annoyed that she hasn't had a say, or is she happy to be quiet?

Ms Whitaker : Mr Scofield is doing a wonderful job at the moment. I'm happy to step in when necessary.

Senator WILLIAMS: Do you ever get a say when you're working with him?

Mr KEOGH: Don't answer that question! You mentioned that you have health insurance products as well as life insurance products?

Mr Scofield : No. We don't have health insurance. That was just by way of dividing up for the committee's assistance the different types of insurance in the market.

Mr KEOGH: To what extent do you make use of genetic information in your process of providing insurance?

Mr Scofield : The Financial Services Council has a standard on the use of genetic information. In those 12 questions I referred to, we don't ask questions relating to the provision of genetic information, and, essentially, because in the direct space we're not actually even asking the customer to provide any sort of external medical information, like a blood test or doctor's reports or their GP file. In our process, we're not asking for any of that.

Mr KEOGH: So you don't ask for any of that information in your process of providing the insurance product? Presumably, you will ask for that information at the time of a claim if it would relate to a condition that was pre-existing at the time of taking out the insurance. Is that right?

Mr Scofield : Well, we generally don't have pre-existing condition exclusions for the most part. They can arise if people, in answering some of those questions, start to indicate that they have a sort of a material, pre-existing condition. And that gets separately underwritten through a manual process, and the premium may be loaded to cover that condition. Or that condition may be excluded. But, as one of the other insurers said this morning, when you get an authority to get people's medical records, genetic information can come back to you through that process. It is never specifically sought, but it can be provided. As I said, in our policy structure, where we don't have pre-existing condition exclusions, any genetic information is unlikely to be relevant to the claim.

Mr KEOGH: I want to test that. You're saying you don't exclude pre-existing conditions; you identify them and price for them, effectively?

Mr Scofield : Yes, or they could be excluded. The policy could be written on the basis that they're covered for everything else except that particular pre-existing condition.

Mr KEOGH: And it's a known pre-existing condition.

Mr Scofield : That's right.

Mr KEOGH: It has to be known to the person taking out the insurance.

Mr Scofield : Yes.

Mr KEOGH: What's the situation where they've had some form of genetic test for a particular reason, whatever that was, that hasn't, to their knowledge, given rise to them being made aware of some predisposition, but the test did occur before they took out the insurance, and you became possessed of that information at the contact of claim because you contacted the doctors or something else and it was disclosed that they do have a pre-existing condition?

Mr Scofield : One answer to that is that, in the first place, we would only ever have said that we would cover that condition with a premium loading or we wouldn't.

Mr KEOGH: They wouldn't have the premium loading and you wouldn't have told them that you were excluding it, because you wouldn't have raised it?

Mr Scofield : The other part of the answer is that, for us, a pre-existing condition becomes one on the basis that the person has had a diagnosis by a doctor.

Mr KEOGH: So, even though it may be sitting there in the test—no-one has looked for it; no-one has advised them of it—it's not a known pre-existing condition?

Mr Scofield : That's right, and it's never been diagnosed or treated, whatever the condition is. Then it wouldn't be considered a pre-existing condition.

Mr KEOGH: If someone has had such a test and they have that information, would you ask any questions that would require them to provide it to you without you specifically saying, 'Have you had a genetic test or can you provide us that information'?

Mr Scofield : No.

Mr KEOGH: You don't provide group insurance, do you?

Mr Scofield : No.

CHAIR: You said your product is 10 years old.

Mr Scofield : Yes.

CHAIR: What did you base all your medical definitions and criteria on? Was it an existing product you might have on-sold from someone else or did you redefine the old ones?

Mr Scofield : No. We work very closely with our reinsurer, a company called RGA, which is a company that has significant experience in Australia and internationally in life insurance. My colleague may want to add something. A lot of that information, in terms of the composition of the product, will have been provided through them.

Ms Whitaker : Correct. When the policy first came into existence, Allianz worked very closely with RGA and their medical experts to determine the definitions that you see in the policy today.

CHAIR: You said you denied three claims last year. How many claims was that out of?

Mr Scofield : Eighteen.

CHAIR: So you had 18 claims?

Mr Scofield : We had 18 claims.

CHAIR: That's pretty low, isn't it?

Mr Scofield : As I said, it's a very small business for us as a company compared to some of the much larger insurers that you've seen in the course of this inquiry.

CHAIR: Then I can ask you as well. As you know, there have been a number of calls for unfair contract-term laws to be extended to the life insurance industry. What are your thoughts on that?

Mr Scofield : The issues come up in relation to the general insurance industry as well. There is a view, which the industry hasn't been able to really successfully present, that the Insurance Contracts Act has provisions around dealing in utmost good faith—and previous interpretations by the courts of what that entails have included notions of fairness—and the unfair-contract-terms style of regulation would not really add much. Having said that, through a number of different inquiries where the issue has come up, the Insurance Council's members and the Insurance Council have come to the view that we want to work on the application of unfair contract terms to general insurance.

And when I say, 'work on the application', the other point I was going to make is that our view is that applying the existing UCT regime to insurance, as if it is like any other good and service, is fraught with some difficulty. Unlike other goods and services—and the goods and services where some of the complaints were that drove the original establishment of the UCT regime: things like gym memberships and mobile phones—in the case of insurance, the contract is all there is. There is no other associated good or service, like a mobile phone or a gym membership. The regime talks about the main subject matter of the contract being excluded from unfair contract term provisions.

So the question then for an insurance company or the industry is: 'What is the main subject matter of an insurance contract?' Some legal advice has been provided that says: 'Basically, the whole contract is the main subject matter, because there is nothing else to insurance other than the contract.' On the other hand, other advice—for example, on a home insurance contract—has said, 'Well, the main subject matter in a home insurance contract is only the address of the house.' So there is a vast uncertainty, really, as to what the main subject matter of an insurance contract is, in the context of the UCT regime, and, in that sense, what the impact would be on insurers or, for that matter, for customers gaining any benefit out of it.

I think it is fair to say that the Financial Services Council has a different view on the issue, but, in the general insurance space, we've come to the view that, if we could work with government, Treasury, parliamentarians or whoever to get some clarity around this, particularly that issue of the main subject matter, then we may be able to find a way of applying UCT to general insurance. The same issues that I have just described, and the complexities and uncertainties created, of course apply equally to life insurance.

CHAIR: Thank you, Mr Scofield. Senator O'Neill, are you there?

Senator O'NEILL: Yes, I am, Chair, thank you very much.

CHAIR: Welcome aboard. Mr Keogh has a question following on from mine and then we'll open it to you, if you like.

Senator O'NEILL: I will just listen for a while, because I have only just joined, and I'll send you a message if I need to ask a question.

Mr KEOGH: Mr Scofield, what you just described, in terms of the nature of the relationship of an insurance contract—that it's contained in the contract—is true of every financial service, and consumer contracts include financial services. So I don't see how what you just explained in any way provides a justification for the exclusion, when the unfair contract term provisions apply to financial services products.

Mr Scofield : Except what I would say is that standard contract provided services now have an unfair contract terms provision, which I think is about four clauses. Insurance contracts have been regulated, if I'm not wrong, since 1974 under the Insurance Contracts Act. The Insurance Contracts Act provides, if you like, a whole different level—

Mr KEOGH: Well, it provides a different way of reading a term, which is, if there's ambiguity, it has to be read to the advantage of the insured. But, if the term is clear and, on its terms, to the advantage of the insurer, it will still work that way. But it's a different question as to whether that term is unfair.

Mr Scofield : As I said, previous cases around what the concept of 'utmost good faith' means have used the word 'fairness'. So courts have previously decided that what that means is that the insurer has to act fairly.

Mr KEOGH: Yes, you're right, in terms of the contract as opposed to the terms of the contract.

Mr Scofield : That's right.

Mr KEOGH: So talking about different things.

Mr Scofield : Yes, you are right. It's not talking about a particular term in a contract being sort of deemed unfair. So, it's a different way, potentially, of coming to the same conclusion.

Mr KEOGH: Well, no, because they're talking about different things. One is about behaviour within the terms of a contract; one is talking about the terms of the contract.

Mr Scofield : Except, if a term of a contract is unfair, then can the insurer be behaving with utmost good faith? I'm not sure. But, as I said, the industry—

Mr KEOGH: Which might beg why it would be useful to clarify the situation through some change to law.

Mr Scofield : As I said, in relation to general insurance, the Insurance Council has determined that this debate about the Insurance Contracts Act has ended up, if you like, being a pretty barren one and that we need to work out a way to adapt the UTC to insurance so that people who feel UTC needs to be applied—

Mr KEOGH: Do you think that an application of that should be facilitated through targeted amendments within the Insurance Contracts Act as opposed to trying to create variation or specific application of the general provisions?

Mr Scofield : I think from the industry's point of view it would be highly desirable and the words would be the same wherever they were. It would be highly desirable to incorporate it into the Insurance Contracts Act rather than have it put somewhere else, where there's much more chance for inconsistency and overlap, duplication, gaps or whatever it might be, to arise.

Mr KEOGH: Thanks.

CHAIR: Were IMEs involved in the three cases you declined?

Mr Scofield : No, we don't use IMEs. We never have. In our life insurance business, we have never used an independent medical examination or an examiner. There is the provision for one to be used, but we've never seen a necessity in any claim we've ever had.

CHAIR: Over to you, Deputy Chair. If the witnesses have already answered a question you ask they'll bring that to your attention.

Senator O'NEILL: Could I just go to the use of genetic information. How is it being used, particularly when making underwriting policy decisions? What sort of level of understanding of genetic data and the statistical validity and significance of it, does this insurer have the capacity to undertake?

CHAIR: We have touched on that but I'll let Mr Scofield enlighten you, because you might have further questions on that.

Mr Scofield : As I previously mentioned, the nature of our process of application through the direct model is that apart from questions in the application about a person's health status and their medical history we don't seek any further information—whether it's their GP file or a requirement to have a blood test or any other information—as a part of that process. So by that nature we don't seek or receive any genetic information.

Senator O'NEILL: Is there a disclosure requirement for people who have undertaken a genetic test to advise you of the outcomes of that if they are aware of them?

Mr Scofield : Not that I am aware of. My colleague might confirm.

Ms Whitaker : No, that's correct. We do not.

CHAIR: Deb, just to give you background, Allianz's book is $20 million, which is quite small, and they only processed 18 claims last year. It is a very small area of their business.

Mr Scofield : I will correct that, because I have just looked it up. We have 18 claims so far this year. Last year we had 24 claims.

CHAIR: Okay.

Senator O'NEILL: Chair, I think I might wait until we get to the next witness so I don't re-prosecute areas that have already been covered. Thank you.

CHAIR: Anyone else with further questions?

Senator WILLIAMS: I think we have covered most things, haven't we, Chair?

CHAIR: Yes, we have. We will close this section of the hearing. Thank you for attending today. We really appreciate you taking the time. I acknowledge it is a small part of your business, but it's great that you're able to answer the questions we've put forward to you. If you have got any questions taken on notice can you provide them to the secretariat by 1 September. Once again, thanks for attending.

Proceedings suspended from 13:47 to 14:06