Review and appeal mechanisms

27.94 The Inquiry received a number of submissions expressing the view that the review and appeal mechanisms available to insurance applicants who received adverse decisions were inadequate.^[63] At present, applicants are limited to seeking internal review by the insurer, lodging a complaint with IFSA in relation to an alleged breach of the Genetic Testing Policy or lodging a complaint of unlawful discrimination with HREOC. Existing external review processes—the Financial Industry Complaints Service (FICS) and Insurance Enquiries and Complaints Ltd (IEC)—do not have jurisdiction to consider complaints relating to premiums or underwriting decisions.

27.95 To date, HREOC has not received any complaints of discrimination on the basis of genetic information,^[64] nor has IFSA received any complaints from consumers in relation to the application of the Genetic Testing Policy.^[65]

Industry regulation

27.96 In its January 2002 submission to the Inquiry, IFSA described the existing review and appeal mechanisms available to unsuccessful applicants for life insurance:

All life insurers have complaints handling processes. With the advent of licensing requirements under the Financial Services Reform Act 2001, these processes will be required to meet specified minimum standards approved by ASIC and we should therefore see further consistency across the industry.

Should a customer be dissatisfied with an insurer’s response then a complaint can be considered by FICS [Financial Industry Complaints Service] at no charge to the customer. Determinations by FICS are binding on the insurer.

FICS does not consider complaints relating to underwriting, so in the case of dissatisfaction with an underwriting decision, the complaint may be referred to the Human Rights and Equal Opportunity Commission (HREOC).^[66]

27.97 As discussed in Chapter 25, the Financial Services Reform Act 2001 (Cth) (FSRA) commenced in March 2002, with a two-year transition period. Under the new licensing arrangements, holders of an Australian Financial Services (AFS) licence, who provide financial services (including life and general insurance) to retail clients are required to have adequate dispute resolution systems. The Australian Securities and Investments Commission (ASIC) administers the dispute resolution provisions of the Corporations Act 2001 (Cth) (Corporations Act) as amended by the FSRA.

27.98 According to ASIC Policy Statement 165 Licensing: Internal and External Dispute Resolution (PS 165):

A dispute resolution system must consist of:

1. internal dispute resolution procedures that comply with standards and requirements made or approved by us and that cover complaints made by retail clients about the financial services provided; and
2. membership of one or more external dispute resolution schemes approved by us that covers, or together cover, complaints made by retail clients in relation to the financial services provided.^[67]

Internal dispute resolution

27.99 ASIC requires all internal dispute resolution (IDR) procedures to:

• satisfy the Essential Elements of Effective Complaints Handling in s 2 of Australian Standard 4269–1995;
• provide for appropriate documentation of IDR procedures; and
• have a system for informing complainants about the availability and accessibility of the relevant external dispute resolution (EDR) scheme.^[68]

27.100 IFSA informed the Inquiry that all life insurers have internal complaint handling processes.^[69] Clause 10.14 of IFSA’s Genetic Testing Policy requires that:

Insurers will have a competent and efficient internal dispute resolution system to deal with complaints relating to underwriting decisions involving a genetic test result. Responses to any complaints must include a reference to the legal remedies available to the applicant.^[70]

27.101 Those processes must now meet the standards set out in PS 165 which in turn adopts the guidelines in Australian Standard 4269–1995 in relation to allocation of resources to IDR procedures, fairness, visibility, access, assistance to complainants, responsiveness and remedies. Insurers’ IDR procedures do not have monetary or other limits on their jurisdiction—as the existing EDR schemes do—and insurers are able to review their own underwriting decisions.

Genetic Testing Policy

27.102 IFSA’s customer brochure on genetic testing in life insurance provides applicants with the following information about monitoring and compliance with the IFSA Genetic Testing Policy:

If you believe that an IFSA member company has breached the provisions of the IFSA Genetic Testing Policy, then contact the IFSA’s Senior Policy Manager (Life Insurance). IFSA will review the matter with a view to liaising with the member company to ensure that the Policy has been followed.

If after IFSA has liaised on your behalf you are still of the view that you have been subject to discrimination you may take the matter of discrimination up with the Human Rights & Equal Opportunity Commission.^[71]

27.103 As noted above, IFSA has not received any complaints under the policy to date. The policy is mandatory for members and, as noted in Chapter 25, the IFSA Code of Conduct and Code of Ethics state that, in the event of non-compliance, the IFSA Board may take a range of disciplinary measures, including public or private censure and suspension of, or expulsion from, IFSA membership.^[72]

External dispute resolution

27.104 In considering whether to approve EDR procedures, ASIC is required to take the following matters into account: accessibility, independence, fairness, accountability, efficiency and effectiveness as well as any other matter ASIC considers relevant. The specific guidelines against which ASIC approves EDR schemes are set out in Policy Statement 139 Approval of External Complaints Resolution Schemes (PS 139).^[73]

27.105 FICS is an independent company established to assist consumers in the resolution of complaints relating to members of the financial services industry, including life insurers. FICS is funded by industry members and approved by ASIC in accordance with PS 165 and PS 139. FICS receives complaints directly from insurance applicants and has the authority to make determinations that are binding on participating life insurers. The jurisdiction of FICS is limited in a number of ways, including monetary limits. FICS may only consider complaints about life insurance policies with a value of less than $250,000.^[74] The reason for the monetary limit is presumably that insurers do not wish to be bound by the external dispute resolution process for large claims, since they may wish to exercise their full legal rights.

27.106 IEC handles complaints about general insurance matters and is also an ASIC approved scheme. IEC determinations are binding on participating general insurers.^[75] FICS, IEC and the Australian Banking Industry Ombudsman operate a common point of access telephone number to assist consumers. Lodging a complaint with FICS or IEC is free of charge to consumers.

27.107 As noted above, FICS and IEC do not currently have jurisdiction to deal with complaints regarding premiums or underwriting.^[76] The Inquiry received advice from FICS that there may be scope for it to examine the actuarial basis of decisions when a proposal ‘was rejected maliciously, or on the basis of incorrect information’, but this possibility does not appear to be utilised in practice.^[77]

27.108 PS 139 requires an independent review of EDR schemes every three years. FICS is currently the subject of such a review. The review published an Issues Paper in August 2002, with the Final Report expected in March 2003. The Issues Paper identified a number of problems with the existing FICS scheme, including the monetary limits on jurisdiction and consumer dissatisfaction with the FICS process.^[78]

27.109 The Inquiry was informed that the ICA and general insurance industry members are currently engaged in a review of IEC’s terms of reference.^[79]

Anti-discrimination legislation

27.110 A complaint of unlawful discrimination based on the use of genetic information by an insurer can be brought before HREOC, which has the power to investigate and conciliate complaints under the DDA.^[80] Of the total 452 complaints received by HREOC in relation to alleged unlawful discrimination under the DDA during the period 2001–2002, 15 complaints (3.3%) were received in relation to insurance and superannuation.^[81] As noted above, however, to date, HREOC has not received any complaints in relation to the use of genetic information in insurance.

27.111 Once a complaint has been lodged, HREOC has the power to require an insurer to provide actuarial or statistical data in accordance with s 107 of the DDA. As discussed above, a number of submissions raised concerns about the effectiveness of this mechanism. When HREOC terminates a complaint of alleged unlawful discrimination because, for example, it cannot be conciliated, the complainant may apply to have the complaint considered by the Federal Court or the Federal Magistrates Court.

27.112 IFSA expressed the view that the anti-discrimination regime provided an effective mechanism for insurance applicants to pursue their rights:

IFSA believes that existing anti-discrimination laws are adequate. In the past they have allowed people to seek recourse when needed and we see no reason why they should fail where genetic information is concerned. We do not see genetic information as being any different to any other type of information collected for risk assessment.^[82]

27.113 The Anti-Discrimination Board of NSW, however, raised the following concerns in relation to relying on the anti-discrimination regime to address consumer complaints in the insurance context:

IFSA’s approach also fails to acknowledge the power inequities which exist between individuals and insurance companies. Where an application for insurance is refused, the onus is on the individual to lodge a complaint under anti-discrimination law. This means people have to understand their experience as discrimination, and have sufficient information and resources to use the complaints mechanisms available.

Even if consumers can do so, there is a significant imbalance of power between consumers and the insurance industry, particularly in relation to their respective capacities to bear the costs involved in pursuing a matter to hearing. This can lead to unsatisfactory settlements at conciliation, while in turn conciliated settlements do not produce binding precedents.^[83]

27.114 The acting Disability Discrimination Commissioner expressed the view that insurance should be properly regulated by insurance law and industry mechanisms in the first instance and that the anti-discrimination regime should be relied on to provide a safety net only where necessary.^[84]

Awareness of existing complaint mechanisms

27.115 A number of submissions indicated that consumers are not made sufficiently aware of the complaint mechanisms available to them in the area of insurance. The study conducted by Dr Kristine Barlow-Stewart and David Keays noted that:

None of the cases of reported genetic discrimination indicated that they were followed by an exhaustion of the available appeal mechanisms and three individuals stated they were unaware how to appeal against the decision of an insurance company. It is apparent that consumers are unaware of the mechanisms available for redress following discrimination.^[85]

27.116 As noted earlier in this chapter and in Chapter 25, IFSA has taken steps to improve this situation, particularly in relation to the Genetic Testing Policy, which imposes an obligation on members to inform applicants about their legal rights to challenge an unfavourable decision.^[86] In addition PS 165 now requires insurers to have a system for informing complainants about the availability and accessibility of the relevant EDR scheme.

27.117 The Anti-Discrimination Board of NSW submitted that government and anti-discrimination agencies also need to be more active in making individuals aware of their right to lodge a complaint of unlawful discrimination in insurance under anti-discrimination law:

People are less likely to be deterred from undertaking genetic testing if they are confident that their human rights will be protected. In order to instil such confidence in the community, not only must privacy and anti-discrimination laws provide adequate protection, people must understand their rights. We refer you to section 3.3.9 above where we emphasise the important role anti-discrimination agencies can play in educating those affected about their rights. As we have discussed, if complaint handling mechanisms are fraught with delays, people are unlikely to feel confident that anti-discrimination legislation will provide effective redress. Community confidence is also likely to be supported where people are assured that they can access information upon which insurance companies base their decision.

So too, anti-discrimination agencies have a critical role to play in working with employers, insurance companies and other service providers to prevent discrimination.^[87]

Options for reform

27.118 A number of submissions proposed changes to the existing review and appeal mechanisms available to applicants, drawing particularly on the experience of some overseas jurisdictions.

27.119 In the United Kingdom, the Association of British Insurers (ABI) has established the Genetic Testing—ABI Code of Practice Adjudication Tribunal, which can receive and adjudicate complaints of alleged breaches of the ABI Genetic Testing Code of Practice for life insurance and some forms of general insurance. The Code of Practice states in part:

48. If an applicant has concerns about any aspect of his/her application for insurance and the resulting decision, he/she should contact the company using its complaints procedure. If the company cannot satisfy the applicant within a reasonable period of time, and the complaint is about a breach in the Code of Practice, the applicant has the right to refer the case to the independent Genetic Testing—ABI Code of Practice Adjudication Tribunal to which ABI companies agree to be bound. The Tribunal, like other adjudication services, will consider appeals only if the insurer’s own complaints mechanism has not resolved the issue to the complainant’s satisfaction. The applicant, of course, is free to apply to another insurance company at any time.

49. The independent Adjudication Tribunal will comprise individuals who have the confidence of both the insurance industry and the public. Amongst them, they will demonstrate a clear understanding of insurance law and underwriting practice and of genetic science and its clinical implications.

50. The Tribunal will consider a complaint from an individual where the insurance company has allegedly breached the Code of Practice when considering his/her application; there will be no cost to the individual whether or not the complaint is upheld. The Tribunal will be funded by the ABI, if necessary by a special levy on its members. They will take evidence from the insurer as well as the applicant. The Tribunal’s decision is binding on the insurer but not on the complainant. Decisions will be analysed so that best practice can be adopted across the industry. The Tribunal will work within terms of reference and to service standards. The Tribunal will publish an annual report which will be available to the public.^[88]

27.120 The Centre for Law and Genetics supported the establishment of a similar body in Australia:

There should also be a clear avenue of appeal to individuals in circumstances where they disagree with the decision that has been made. … The creation of a robust, independent appeals mechanism as recommended by the [United Kingdom] Human Genetics Advisory Commission and as now provided for under the Association of British Insurers Code of Practice should therefore be a priority.

Such measures would assist in enhancing the accountability of insurers in their use of genetic information and at the same time, would help to promote understanding of the implications of genetic testing in the community.^[89]

27.121 The Commonwealth Department of Health and Ageing proposed that serious attention should be given to the framework elements of the ABI Genetic Testing Code of Practice, including a complaint and appeal mechanism such as adjudication by the ABI Code of Practice Adjudication Tribunal.^[90] It was suggested that IFSA’s Genetic Testing Policy, which already includes a number of these elements, could form the basis for further developments in both the life and general insurance industries.

27.122 In consultations, the Swedish Insurance Federation reported that a review board had been established by statute in Sweden to investigate complaints with regard to the use of genetic information in underwriting.^[91] The body had been established to provide a mechanism of review that was independent of the insurer that made the underwriting decision but by March 2003 it had not received a complaint.

27.123 In response to DP 66, IFSA expressed the view that:

IFSA supports the need to ensure that only acceptable and appropriate uses are made of genetic test results and that the development of an appropriate independent review mechanism is the best way to achieve this. IFSA believes that the Financial Industry Complaints Service Limited (FICS) with an extension of that body’s jurisdiction to deal with such matters would be ideally suited to this task …

IFSA believes that it is feasible for the existing role of the FICS as an EDR scheme to be expanded to cover complaints concerning underwriting decisions based on the use of genetic test information only. IFSA’s view is that the position on family medical history requires further research and investigation, as canvassed earlier, before giving consideration to any expansion of the jurisdiction of FICS with respect to family medical history.

IFSA proposes to seek an in principle agreement with FICS to amend their Rules/Constitution which currently excludes dealing with complaints relating to underwriting decisions leading to an offer or rejection of insurance based on genetic test results.

IFSA will commence liaising with FICS in January 2003 with a view to seeking an extension of FICS’ jurisdiction to deal with complaints against life insurers and the establishment of a separate panel. This separate panel would comprise individuals who have the right mix of skills to adjudicate matters relating to genetic information such as a representative from the Human Genetics Society of Australasia.^[92]

27.124 The Centre for Law and Genetics noted in relation to this proposal that a properly constituted industry body could fulfil this role, although the Centre suggested some level of oversight of the industry body by the HGCA.^[93] The Australian Life Underwriters and Claims Association agreed that FICS could take on this role but suggested that an expert panel within FICS may have to be established to deal with complaints about insurers’ use of genetic information.^[94]

Inquiry’s views

27.125 The Inquiry is of the view that there is a gap in the avenues for review and appeal currently available to applicants for insurance where genetic information has been used in underwriting. An applicant may seek review by the insurer that made the decision, in accordance with the insurer’s IDR procedures. If the complaint is not resolved with the insurer, applicants may seek external review through a government agency such as HREOC, and ultimately through the courts. Applicants for life insurance products may also approach IFSA under its Genetic Testing Policy.

27.126 The difficulties with internal review by insurers include that the process lacks independence, and the adequacy of procedures may vary widely among insurers. The mandatory standards established for IDR procedures under the FSRA, discussed above, may lead to a more consistent approach to this issue across the industry in the future. The intercession of IFSA under the Genetic Testing Policy is limited to complaints in relation to applications for life insurance products involving genetic test information.

27.127 The difficulties with HREOC procedures are that applicants may be unaware of their right to seek review; such review may be costly and slow; applicants may have difficulty in ascertaining the information upon which they can base their claim of unlawful discrimination; and the disparity between the capacity of the applicants and insurers to pursue the claim may lead to unsatisfactory settlement outcomes. Many of the difficulties of review by a government agency are systemic: they are not specific to complaints regarding the use of genetic information, nor even to complaints against insurers. If solutions to these problems are to be found, it will be necessary to look beyond the scope of the present Inquiry. As a result, the Inquiry makes no recommendations for the reform of the existing system of merits review by anti-discrimination agencies.

27.128 The Inquiry has formed the view that the external dispute resolution schemes offered by FICS and the IEC should be expanded to provide an industry-based mechanism for investigating and adjudicating disputes about underwriting decisions based on genetic information. This will provide a middle tier of review—one that is independent of the insurer who made the decision but avoids some of the difficulties associated with independent agency review.

27.129 Implementation of this recommendation will require a review of the constitution of each body to enable them to receive complaints about adverse underwriting decisions. It will also require a reconsideration of the monetary limits on their jurisdiction. In Chapter 25 the Inquiry noted that the approximate average level of cover for term life insurance in Australia is $235,000. If FICS were to maintain its current jurisdictional limit of $250,000, many life policies would be excluded from the review process. The Inquiry is of the view that any monetary limits on jurisdiction should be adequate to ensure that FICS and IEC have the capacity to deal with a substantial majority of complaints. These issues will need to be addressed in response to the final report of the independent review of FICS, which may provide a starting point for the development of this new role for FICS.

27.130 The Inquiry is of the view that the jurisdiction of FICS and IEC should be expanded to include underwriting decisions involving family medical history as well as genetic test information. This would be consistent with the suggested extension of the Genetic Testing Policy to cover family medical history. Some of the case studies in submissions involved the interaction of genetic test information and family medical history and it is important that industry complaints bodies are able to consider both issues where they arise. Both are of concern to the community and the Inquiry is of the view that the additional transparency and accountability likely to accompany independent review will improve public confidence in the use of this information by insurers.

27.131 Given the complexity of using genetic information in insurance, it is important that review bodies have the expertise to examine both the medical and actuarial dimensions of the underwriting process. One way of achieving this might be to establish expert panels as part of the FICS and IEC processes. As noted above, these EDR processes are subject to independent oversight by ASIC under the FSRA. Any amendment to the rules of FICS or IEC must meet the standards set out in PS 165 and PS 139 and must be submitted to ASIC for approval.

27.132 In relation to the raising of awareness of review procedures, the Inquiry notes that PS 165 imposes an obligation on insurers to inform applicants of available EDR processes. The issue of community education is discussed further below.