A review by ASIC has found significant industry-wide problems with the design of total and permanent disability (TPD) insurance and the claims handling process that mean many consumers can’t rely on this cover when they need it most. Over 12 million 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 expects industry to make prompt changes to ensure this cover provides real value.
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 lacked 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.
Superannuation trustees also have a crucial role to play in the delivery of life insurance to their members. We expect trustees 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 collected data on 35,000 TPD claims and commissioned consumer research. The review identified that insurer practices such as difficult lodgement processes, poor communication practices, multiple requests for medical assessments, and excessive delays were just some of the problems consumers found during the claims assessment process. Each of these issues presented a hurdle to making a successful claim, and ASIC is concerned that insurers had limited insights about the reasons for withdrawn claims, showing poor oversight…