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The Financial Services Royal Commission (FSRC), formally the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, has cast a critical spotlight on Australia’s financial services sector. Among its many areas of scrutiny, trauma cover also known as critical illness insurance has emerged as a significant concern.

The Commission’s findings highlighted multiple issues, including complex policy terms, problematic sales practices, difficulties in claims handling, and gaps in regulatory oversight. Eight out of ten life insurers admitted deficiencies in reviewing and updating medical definitions in their trauma insurance policies.

Complexity and clarity of policy terms

The Royal Commission found that trauma cover policies are often highly complex. These products include intricate medical definitions, exclusions, and conditions that can be difficult for policyholders to understand.

For example, some policies use technical language that can make it unclear what conditions are actually covered or how claims will be assessed. This opacity can lead to confusion and unmet expectations when policyholders attempt to claim benefits. Many consumers reported receiving limited explanation of policy terms at the point of sale, compounding the problem.

Sales practices and mis-selling

The Commission investigated the sales practices of insurers and financial advisors and uncovered instances of mis-selling. Consumers were sometimes sold trauma cover policies that were not appropriate for their needs or financial situation.

In some cases, insurers and advisors prioritised their own commissions over the best interests of clients. As a result, many consumers purchased expensive policies without fully understanding the conditions under which claims could be made or the limitations of their cover.

Claims handling and denials

The FSRC’s review of claims handling practices revealed delays and denials as common issues. Insurers were found to interpret policy terms strictly, sometimes unreasonably, when assessing claims.

This was particularly evident in relation to medical definitions and the requirement for extensive documentation. The Commission noted that these practices were often unfair and placed additional stress on policyholders, who were already dealing with serious illness.

Regulatory oversight and enforcement

The Royal Commission also highlighted deficiencies in regulatory oversight. ASIC and APRA were found not to have been proactive enough in monitoring insurance practices and addressing misconduct.

The lack of effective enforcement allowed poor practices to continue, often to the detriment of consumers. The FSRC emphasised that stronger regulatory action is necessary to ensure fair treatment of policyholders.

Key recommendations from the Royal Commission

The FSRC made a number of recommendations aimed at improving transparency, fairness, and accountability in the trauma cover sector:

• Clear and consistent definitions: Insurers should use clear, up-to-date medical definitions and regularly review these to align with current medical standards. This helps prevent disputes arising from outdated or ambiguous definitions.
• Improved disclosure requirements: Consumers should be provided with clear, concise information about policy terms, conditions, exclusions, and the claims process at the point of sale.
• Standardisation of terms: Using standardised key terms and definitions across the industry makes it easier for consumers to compare policies and reduces confusion.
• Regular policy reviews: Insurers should review policies periodically to ensure they remain relevant, updating definitions and coverage to reflect advances in medical science.
• Enhanced claims handling processes: Insurers should assess claims fairly, promptly, and transparently, with clear guidelines for staff to follow.
• Stronger consumer protections: Measures should protect consumers from unfair practices, including the use of outdated or ambiguous definitions to deny claims.
• Transparency and accountability: Insurers should publish data on claims outcomes, including the number of claims received, approved, and denied, to improve accountability.
• Consumer education: Insurers and regulators should provide accessible information about trauma cover, educating consumers on their rights, the claims process, and how to choose appropriate coverage.

Additional context

The Royal Commission also referenced specific cases and industry examples illustrating these issues, such as:

• Deficiencies in updating medical definitions for critical illnesses.
• Instances of mis-selling by financial advisors prioritising commissions.
• Delays and denials in claims handling, particularly where insurers applied overly strict interpretations of medical definitions.
• Limitations in regulatory oversight by ASIC and APRA . 

The Financial Services Royal Commission cast a critical spotlight on Australia’s financial services sector. Among its many areas of scrutiny, trauma cover also known as critical illness insurance has emerged as a significant concern.

The Commission’s findings from 2019 highlighted multiple issues, including complex policy terms, problematic sales practices, difficulties in claims handling, and gaps in regulatory oversight. Eight out of ten life insurers admitted deficiencies in reviewing and updating medical definitions in their trauma insurance policies.

Whilst there has been some acknowledgement by Insurers of the challenges with underwriting and policy terms in Trauma cover, claimants should be aware there are ongoing challenges in running trauma claims.

These findings highlight the importance of thorough review, informed decision-making, and awareness of one’s rights when purchasing or claiming trauma insurance.

The FSRC has underscored serious concerns in Australia’s trauma insurance sector, including complex policy terms, inappropriate sales practices, unfair claims handling, and gaps in regulatory oversight.

By implementing the Commission’s recommendations, insurers and regulators can improve transparency, fairness, and accountability, helping trauma cover fulfil its role as a reliable safety net during critical illness.

At Carroll & O’Dea Lawyers, we know how much your trauma claim matters to you and your family. Your financial security can depend on it, and we are here to guide you through the process, helping you put forward the strongest claim possible.

Talk to us

If your trauma claim is proving difficult, or has been refused, call us today. We offer a first appointment free, with no obligation, to review your claim and explain your options. We also work on a no win, no fee basis for trauma and TPD claims.

This article was published on 18 of May by Carroll & O’Dea Lawyers and is based on the relevant state of the law (legislation, regulations and case law) at that date for the jurisdiction in which it is published. Please note this article does not constitute legal advice. If you ever need legal advice or want to discuss a legal problem, please contact us to see if we can help. You can reach us on 1800 059 278 or via the Contact us page on our website. (www.codea.com.au). If you think you or a family member might be eligible to make a claim, use our Trauma Insurance Claim Check now.