Legacy IT systems have been the downfall of a life insurance company serving Australians for 130 years, resulting in a fine and a lambasting in court.
MLC Life Insurance has been ordered to pay $10 million penalty for misleading customers and failing to pay promised benefits, which resulted from a lack of appropriate systems to administer its insurance policies.
The firm was taken to court by the industry watchdog, the Australian Securities and Investments Commission (ASIC), which has vowed to continue to take action against insurers who aren’t acting in accordance with their duty of good faith towards their customers.
In the Federal Court, Justice Moshinsky declared that MLC had contravened the ASIC Act, the Corporations Act and the Insurance Contracts Act for failures to poor governance, poor controls and poor systems such as legacy IT systems.
ASIC determined that between February 2015 and June 2017, MLC did not have adequate processes to review and update medication definitions and critical illnesses.
Of particular concern was the policy administration system, Eclipse, which provided communications to insureds.
The IT system was configured to enable MLC to suppress the automated communications to insureds by manually applying the mail suppression flag in the system.
In addition to the $10 million penalty, MLC has provided approximately $11.8 million in remediation to approximately 1,000 impacted customers.
The Court heard that MLC customers deserve to have their insurance policies administered properly. The firm sells life insurance policies providing coverage for income protection, critical illnesses and other personal risks.
ASIC Deputy Chair Sarah Court said, “Customers should be able to trust that their insurer will pay the benefits promised to them and keep them properly informed if there are changes to their policies.”
More recently, MLC Life Insurance has been playing catch-up to get on the front foot with its IT systems.
In May last year, the insurer announced a partnership with Insignia Financial to launch new claims digitally through an in-house integrated online platform. The point of the shift was to avoid delays in the time it takes to have claims assessed.
Insignia Financial’s general manager, Master Trust and Insurance Products, Sam Wall said the new digital experience is a leap forward for how members can make a claim.
The IT system has specifically been designed to give members greater control and visibility over their claim, including real-time updates to ensure transparency.
MLC Life Insurance is currently promoting its improved digital experience for customers on its website.
MLC Life Insurance is not the first company to be reprimanded for legacy IT systems.
Last week, AMP Group has also copped a combined penalty of $24 million after charging life insurance premiums and advice fees from the superannuation accounts of more than 2,000 deceased customers.
The Federal Court found that the systems in place were inadequate, resulting in a failure to have a process in place capable of identifying, investigating and remediating systemic issues for many years.
Late last year, Telstra incorrectly took action against 70 customers on financial hardship arrangements in breach of the consumer protection code. The Australian Communications and Media Authority took action against Telstra, and also blamed legacy IT system issues for the failure.
Meanwhile, Gartner’s Accelerate Digital for Future-Ready Government report found that consumer expectations for digital services skyrocketed amid the pandemic, forcing a shift away from legacy systems.
Gartner’s report predicts that in the next two years, more than 50 per cent of government agencies will have modernised critical legacy applications to improve resilience and agility.
