ASIC takes legal action against MLC over alleged insurance policy failures

ASIC takes legal action against MLC over alleged insurance policy failures

The Australian Securities and Investment Commission (ASIC) has commenced civil penalty proceedings in the Federal Court against MLC for alleged insurance policy and service failures resulting from what the watchdog describes as “poor systems and controls”.

ASIC claims MCL’s failure to implement appropriate systems over a period of more than 20 years resulted in unpaid insurance benefits, premiums being charged without notice and underpaid refunds, leading to more than $17.5 million in financial harm to more than 260,000 customers.

As such, the watchdog is seeking declarations, pecuniary penalties and other relief from the Federal Court as punishment for MLC allegedly breaching its obligations as a financial services provider and its duty to act with the utmost good faith when handling claims.

“Consumers should be able to trust insurers to pay their full benefit in times of need and keep them informed about significant changes to their policies. This case alleges failures by MLC, over many years, to ensure a reliable delivery of basic and everyday insurance services,” ASIC deputy chair Sarah Court said.

“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.

“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.

MLC has advised ASIC that it has remediated customers impacted by the alleged conduct.

In response, MLC has acknowledged the proceedings announced by ASIC today, noting the events were self-reported to the watchdog.

"Following our internal investigations, all impacted customers were fully compensated and the events remediated and closed," MLC said.

"We take our responsibility to deliver on our customer commitments seriously. Where we fall short in doing the right thing for our customers, we communicate with them and remediate our errors promptly. 

"MLC Life Insurance will carefully consider the claims by ASIC and is committed to working constructively through the legal process."

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