Updated: Feb 11, 2020
By Asia Insurance Review (18 October 2019)
Australian Securities & Investments Commission (ASIC) expects insurers and superannuation fund trustees to make prompt changes to ensure that total and permanent disability (TPD) insurance provide real value to policyholders.
TPD insurance is a type of life insurance that pays a lump sum if the consumer becomes totally and permanently disabled under the terms of the insurance policy. Data published by APRA for the 2018 calendar year shows that almost 90% of consumers with TPD obtained their insurance cover through their superannuation fund.
A review by ASIC has found significant industry-wide problems with the design of TPD and the claims handling process that mean many consumers can’t rely on this cover when they need it most, the regulator says in a statement.
Over 12m Australian workers automatically pay for TPD cover through their superannuation to provide financial protection when they are so sick or injured that they can never work again.
ASIC’s review found that:
Nearly half a million Australians, often working in casual roles or high-risk occupations, are covered by a very narrow TPD policy definition that only pays out in the most catastrophic circumstances, if they are unable to perform several “activities of daily living” (known as ADL cover), such as feeding, dressing or washing themselves.
Three out of five, or 60% of claims assessed under this narrow cover are declined. This is five times higher than the average declined claim rate for all other TPD claims (12%).
Poor claims handling processes contributed to some consumers withdrawing their claims: one in eight, or 12% of claims lodged with insurers did not proceed to a decision.
Insurers lack key claims data to help them effectively manage the risk of consumer harm – including being able to identify the value of products to consumers and key friction points in their claims handling processes.
ASIC commissioner Sean Hughes said, “Alarmingly, we found that three TPD claims a day are assessed under the restrictive ‘activities of daily living’ definition, which has a concerningly high decline rate. People that hold this type of automatic cover through superannuation are typically paying the same premium – for what is essentially junk insurance – as people who can access less restrictive definitions under general TPD cover.
'We also find it inexcusable that insurers did not use, or in some cases even collect, data to enable them to identify the very poor consumer outcomes that are being produced because of these restrictive definitions.”
He said that superannuation trustees also have a crucial role to play. Trustees are expected to act in their members’ best interests by providing access to affordable insurance products that are suitably designed for their members while also safeguarding superannuation balances from inappropriate erosion.
ASIC's review focused on seven insurers:
AMP Life and the National Mutual Life Association of Australasia (part of the AMP Group of companies)
Asteron Life & Superannuation – previously Suncorp Life & Superannuation
Westpac Life Insurance Services.
These insurers represent 65–70% of the total number of TPD claims. ASIC reviewed conduct between 1 January 2016 and 31 December 2017.