Some of the most influential people in the group insurance space met in Sydney in March to discuss the sustainability of the sector. The group discussed initiatives to limit lawyer-led insurance claims and to improve data standards.
The superannuation member who makes a total and permanent disability (TPD) claim through a lawyer and ends up paying most of the eventual claim in “legal services” sounds so absurd it could be an urban myth. However, there are many stories of members losing out by choosing the legal route for claims. One way of preventing this is by making it mandatory for members to submit a claim through their fund and only go to a lawyer if their claim is turned down. While many accept that lawyers have an important role to play in helping members in disputes, there is discomfort that for many members, going down the legal route will be expensive and drawn-out.
Russell Mason, lead superannuation partner at Deloitte, speaks of a client who paid a 50 per cent contingency fee and 20 per cent in expenses to their lawyer on a TPD claim that might have been paid in full if they had gone directly to the insurer.
“I find that obscene, and that is not helping our members,” he says. “As an industry we need to work with the law societies, with government, to say, the first step must be to lodge the claim with the fund. Surely, just as if we have a motor vehicle accident, the first thing we do is lodge the claim for the damage to our car with the insurer. If they say, ‘No, we are not going to pay’, then I might seek legal advice.”
An initiative led by Helen Hewett, executive officer of the Industry Fund Forum, is trying to force members to do just this. She has organised a meeting with insurers and reinsurers to explore the legality of requiring members who are making a claim to deal with the fund in the first instance.
The growth in such incidences is confirmed by Bernard O’Connor, manager of member services at NGS Super, who speaks of getting more and more income protection claim forms issued directly from law firms.
“Before we have even had a chance to assess it, it is coming from a lawyer,” he says. “So you know if it is successful, there is going to be a payment to the law firm at the expense of the member, who really could have just filled [out] a form himself, or herself, and got the claim.”
Hewett recognises that part of the problem starts with superannuation funds themselves.
“We also try to look at ourselves and say, well, have we been a part of this problem?” she says. “Have we then created this perception that it is just so hard that you need a lawyer?”
She says the process of claiming could be made easier and that funds, employers, insurers and administrators could do a better job in communicating to members.
A lot of the issues arise from funds sending out information that is not easy to understand, which is forcing members to seek advice from legal firms. “We have looked at some of the information and
we have actually had people who work in the industry say, ‘Oh, do they mean this or do they mean that?’,” she says.
According to Colin Cassidy, national insurance manager at HOSTPLUS, the problem could well be an indictment on the industry for not properly advertising the benefits they provide, preferring to talk about high returns and low fees. He says the legal profession saw a gap and filled it.
He speculates that funds could run a campaign stating: “If you should have the misfortune to have a claim, you can come direct to us. It will cost you XY compared to the retail price of the lawyer.”
Linda Winterbottom, senior rehabilitation specialist at CommInsure, says she knows of one super fund that analysed the length of time it took to pay claims initiated by members versus those from lawyers.
The fund found the latter generally took twice as long.
She spoke of an experience with a retail client, with whom she had discussed rehabilitation and a return-to-work plan but who had a workers’ compensation claim running concurrently, and who she advised to get feedback from their lawyer before coming back to her.
She recalls: “I have been around the traps long enough to know that with a concurrent workers’ compensation [claim] there is going to be pushback from some lawyers to not engage in return-to-work and rehabilitation until that process has finished.”
Her hunch proved correct as the client’s lawyer advised against pursuing rehabilitation at this stage; but six months later the client got back in touch.
“I received an email from him saying, ‘You know what, I am ready to go’,” she recalls. “He came into the office and we sat down, and I said to him, ‘What has changed? Is the workers’ compensation claim still concurrent?’ And he said yes, and I said, ‘What has changed?’. He said, ‘You know what, I just want to get better, and I just want to go back to work.’ He said, ‘I do not care what my lawyer says to me now. I want this assistance so I can move forward.’”
Inadvertently, unions might also be doing more harm than good here. Accustomed to helping their members win workers’ compensation claims, this can lead members own a legal process where proving an inability to work, rather than pursuing rehabilitation, might take precedence.
Hewett says: “We spoke to one professional union and they said, ‘We really look after the members. We do a great job. We have got a deal with five lawyers.’”
She is also aware that some insurers do not contest claims of less than AU$25,000-$30,000, because they are they are not worth the cost of fighting claims on.
Frank Crapis, head of industry fund segment at CommInsure, confirms an increase in lawyer-initiated claims, but denies his firm has a policy of paying everything that comes through below a certain claim size.
Winterbottom cites the increased resources CommInsure is bringing in to help members back to work, including a specialist mental health team alongside existing physiotherapists and rehab counsellors.
Part of her unit’s belief is that individuals make a better recovery if they are rehabilitated in the workplace and that part of the conversation involves talking to the employer in terms of alternate duties.
“People are not unwell one day and then 100 per cent better; it is a gradual process,” she says.
“I am very firm on the role of direct member contact, because you need to understand the individual that you are dealing with, and all their circumstances,” she says. “Then you need to know the employer situation and identify where the opportunities are. Then you need to know the mental situation. Then you need to sit in front of the doctor and go, ‘The employer can do this. We know these are restrictions and we know these are the abilities.’ We can keep them in the workplace. We are going to minimise time loss out of the workforce, which is going to basically get a better outcome for the member in total.”
Improving data standards
Another initiative of the Industry Fund Forum is to create uniform data standards among its members that will give insurers a better assessment of the risks they are covering and hopefully lead to more sustainable pricing and better product design.
Hewett says part of the problem is information in different formats and housed in different locations. The problem is also about encouraging members to fill out forms.
“We are arguing very strongly that you have to have mandated data standards,” she says. “We are trying to work with funds so that we can agree on data that will give insurers and reinsurers the information they need to be able to achieve sustainable pricing so that they can correctly identify where it is all transparent; and we are inviting insurers to have some input into that process. It will give us the ability to understand much better some of the product design issues that we kind of know are contributing.”
This project is running in parallel to monitoring of the incidence of mental health by SuperFriend.
Margo Lydon, chief executive of SuperFriend, says: “We have got a very large data project that we are working through, looking at mental illness claims for TDP and IP, but also death when the known cause of death is suicide.”
Crapis is enthusiastic about these projects. He thinks it would help with product design, needs-based scales, the way CommInsure underwrites, and engagement with the membership.
One perception disabused in the discussion is that the increasingly diverse membership of industry funds is making it harder for insurers to price risk. Jeff Humphreys, principal of CHR Consulting, says: “The claims experience is all we need to know. We do not need thousands and thousands of occupations to work out the cost.”
Member demographic profile and occupation clearly do have an effect on the claims experience, but historical claims experience is not necessarily indicative of future claims experience, as has been witnessed with recent price increases.
Colin Cassidy, national insurance manager, HOSTPLUS
Frank Crapis, head of industry fund segment, CommInsure
Helen Hewett, executive officer, Industry Funds Forum
Jeff Humphreys, principal, CHR Consulting
Margo Lydon, chief executive, SuperFriend
Russell Mason, leader superannuation partner, Deloitte
Bernard O’Connor, head of member services, NGS Super
Linda Winterbottom, senior rehabilitation specialist, CommInsure
David Rowley, editor, Investment Magazine