The ASIC report into TPD claims has landed.

Some practices and products have had the blowtorch treatment.

Foremost of these is the use of Activities of Daily Living (ADL) definitions in TPD policies. The standard TPD definition is the permanent incapacity for the insured’s usual occupation or any other suitable work within his/her education, training or experience, perhaps with a retraining clause added.

However, some policies require a claimant to be unable to perform two or more daily living activities such as feeding, bathing, dressing, toileting, walking and transferring from bed.

Some policies apply the much harsher ADL definition to “high-risk” occupations and some group policies under superannuation flip members into ADL’s if they don’t meet “at work” or minimum working hours thresholds.

ASIC estimate that 13 million Australians hold TPD policies and, of those, 500,000 have policies with restrictive ADL definitions.

The report notes that 60 per cent of ADL claims were rejected in their survey. In contrast only 12 per cent of other TPD claims were rejected.

Most consumers have no idea about the policy machinations or how disadvantaged they are if an ADL definition is applied to them.

Only a tiny fraction of Berrill and Watson’s clients would satisfy the onerous ADL requirements. And yet, the insurance premiums charged for both are either the same or similar and don’t reflect the comparative risk.

The report notes that one insurer has removed ADL cover from TPD within superannuation and ASIC say they will conduct further assessments and may use their product intervention powers.

What stands out in the report is that ADLs have no place in employment-related insurance benefits such as MySuper default cover. They are trauma benefits measured by an inability to self-care, not an incapacity to work and accumulate income for retirement. Other practices that feature in the report are some claims processes and data collection and reporting.

ASIC identified “frictions” in the claims assessments such as poor communication, excessive delays, potentially threatening surveillance and desk top surveillance, which they linked to claims withdrawal rates of 12 per cent.

They also acknowledged that eligibility issues and returns to work were common roadblocks to successful TPD claims. Given the nature of the product and the assessment of permanency, this is hardly surprising. TPD claim timeframes have come down since the introduction of the codes of practice in life insurance, as was reflected in the data released by ASIC and APRA in March 2019. The average timeframe for acceptance of individual policy TPD claims at 8.2 months, whilst TPD claims through superannuation did even better at 5.1 months.

However, as the report highlights, work still needs to be done to improve the claims processes.

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