The Australian Securities and Investments Commission (ASIC) is targeting insurer handling of suspected fraud after finding a high level of cases where consumers with legitimate claims are investigated.

Data collection by ASIC found a very high “false positive” rate for suspected fraudulent claims related to motor vehicle cover, with the investigation process sometimes causing consumers to abandon valid claims.

“Overwhelmingly, consumers in our research say that they were just not believed,” ASIC Commissioner Sean Hughes told the Insurance Council of Australia (ICA) Annual Forum today. “There must be a better way to validate a claim.”

Mr Hughes says the regulator has worked with the ICA on improvements in the Code of Practice “as a first step” and will release a report on its findings in the area this year.

“Insurers should have investigation processes that are fair and reasonable and do not rely on consumers seeking robust and expensive legal representation or being so worn down by the process that they abandon their claim,” he said.

ASIC’s work has included bringing stakeholders together to develop standards, examining policies and procedures, and collecting data. It is currently completing targeted research to understand the impact on consumers of the high “false positive” rate.

Results have indicated that more than 70% of claims investigated are found to be valid and paid, with only a little over 4% declined due to fraud.

The data indicates that almost 15% of investigated claims are withdrawn, with a withdrawal rate of 45% for investigated claims that take more than 360 days to be resolved.

Mr Hughes says a consumer story from the research shows a claimant was made to feel like a criminal before ultimately winning his case after hiring his own lawyer and forensic expert.

ASIC is also continuing to focus on consumer credit insurance and will be working on proposals to mandate a deferred sales model for products. A report will be released later this year.

“We are now working with lenders and insurers on appropriate remediation, now expected to be tens of millions of dollars paid to hundreds of thousands of consumers,” Mr Hughes said.

Insurers more generally were urged to be pro-active in making changes to improve consumer outcomes and not wait for legislative changes to drive a minimalist legal compliance approach.

This should include making sure products are correctly sold and ensuring disclosure documents “actually work” for consumers.

“Look again at the ICA’s own research findings in this area to see what could succeed,” Mr Hughes said. “Test some ideas and come and talk to ASIC if there are regtech solutions that can help you implement solutions.”