ASIC brings charges against MLC for systemic failures from poor governance, IT

ASIC is pursuing MLC in the Federal Court in a civil action it says was triggered by insurance policy and service failures resulting from poor systems and controls.

The regulator says poor claims handling and the failure of life insurers to update medical definitions in their insurance policies to accord with the current medical practice were both issues considered by the Financial Services Royal Commission.

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In MLC's case, ASIC is alleging a variety of problems, from poor staff training to poorly designed systems including its “Eclipse” system which generated automated correspondence to insureds concerning various matters. 

Unfortunately, according to ASIC, in certain circumstances the Eclipse system required automated communications to be suppressed manually by MLC personnel. This required  MLC personnel to switch on the “mail suppression flag”. The flag then needed to be manually switched off when the reason for suppression ended. 

In its Notice of Filing, ASIC says "From 2002 until around March 2018, MLC personnel switched on the Flag for 1,242 policies but then failed to switch off the Flag when the reason for the suppression ended. As a result, MLC failed to send mandatory correspondence to the insureds covered by those policies.

"Those insureds suffered various consequences including, by way of example, the cancellation of policies for non-payment of premiums despite not receiving Overdue / Dishonour Notices and being charged increased premiums despite not receiving Annual Renewal Notices."

Insurance companies have been in the crosshairs in the last 12 months, though more for compliance failures than IT snafus. In November 2020 and March 2021 respectively, the Federal Court declared that Youi and TAL Life breached their 'duties of utmost good faith' in handling insurance claims while last month 2021, brought civil proceedings against IAL in the Federal Court over what it said was that company's failure to honour discount promises made to its customers.

Systems

"Insurers need to make sure they have adequate systems and controls to manage risk and administer their insurance policies correctly. Too often, we are seeing consumers harmed by implementation issues, legacy IT systems and failures resulting from poor governance and culture," said ASIC Deputy Chair Sarah Court in a statement issued Friday afternoon last week.

The watchdog claims that MLC’s failure to implement appropriate systems and controls resulted in unpaid insurance benefits, premiums being charged without notice and underpaid refunds.

According to Court, "ASIC will look to take enforcement action to ensure these systems improve.’ 

ASIC alleges that from 1999 to November 2020, MLC failed to:

• pay a life insurance benefit, known as a ‘rehabilitation bonus benefit’, to 297 eligible customers who were undergoing rehabilitation following an insured injury or disability;
• update its definition of ‘Severe Rheumatoid Arthritis’ in a timely way, resulting in 12 customers suffering from Severe Rheumatoid Arthritis being denied insurance cover and MLC having to update the definition in over 190,000 insurance policies;
• notify over 800 customers that their annual premiums had increased, their premiums were overdue, or that their insurance policies had been cancelled or lapsed; and
• fully refund premiums to over 260,000 customers who had cancelled their loan insurance policies or paid out their loans.

Furthermore, the regulator is arguing that MLC breached its obligations as a financial services provider and its duty to act with the utmost good faith when handling claims.

MLC has advised ASIC that it has remediated customers impacted by the alleged conduct, however, ASIC is seeking declarations, pecuniary penalties and other relief from the Federal Court.

The date for the first case management hearing is yet to be scheduled.