Poor TPD outcomes revealed in ASIC review
A review from the corporate regulator has found significant industry-wide problems with the design of total and permanent disability insurance and the claims handling process.
As it released Report 633, Holes in the safety net: A review of TPD insurance claims, ASIC said it 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 per cent of claims assessed under this narrow cover are declined, which is five times higher than the average declined claim rate for all other TPD claims (12 per cent).
- Poor claims handling processes contributed to some consumers withdrawing their claims, with one in eight, or 12 per cent, 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.
In response to the review, ASIC said it expects industry to make prompt changes to ensure this cover provides real value.
Further, ASIC noted that 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.
“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,” said ASIC commissioner Sean Hughes.
“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.”
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