TPD design and claims tail affecting sustainability

Total and Permanent Disablement (TPD) insurance needs to be redesigned to provide instalment payments with insurers removing barriers to claims during stressful times for insured people.

At the same time waiting periods to make claims should be radically reduced to get people into rehabilitation and back to work according to the immediate past chair of the Superannuation Complaints Tribunal Jocelyn Furlan.

Speaking at the Money Management TPD — Fatal or Flexible breakfast briefing in Sydney this morning, Furlan also said the length of the tail on old claims should also be reduced to remove costs which are borne by non-claimants.

According to Furlan the ongoing tail of claims impacts the long-term sustainability of TPD policies and the creation of new policies further stretches that tail.

"As new policies are created there should be some consideration around ensuring old claims are made within a certain time frame. There will be legal advice needed on how this work but it is something that has not been looked at so far."

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Furlan said this type of review was important particularly after the wave of people who have achieved life insurance cover via superannuation funds and those who have retained cover even though they have moved to self-managed superannuation funds.

According to Furlan group TPD policies have become an area of concern because they have probably been incorrectly priced for members.

As such Furlan questioned whether premiums were based on members being unsure as to what they are entitled to stating "if all members knew what they were entitled to would the cost of group TPD be as low as it has been in the past?".

This issue was coming to the fore via the action of plaintiff law firms who were becoming involved with TPD claims with Furlan stating there was no impediment to them doing so.

However, Furlan stated that lawyers lodging legal action at the same time as insureds make a claim was an area of concern and in her time at the SCT the issue had been raised with legal firms and law societies.

"The insurance sector needs to push back against this, by dealing with law societies and governments and asking them to examine this behaviour from plantiff law firms."

"Super fund members are not in dispute with their fund at time of claim. Members are being persuaded to take cases to court rather than SCT or Financial Ombudsman Service (FOS) because claims more likely to win or get a financial benefit in court."

Furlan also stated that six month waiting periods for claims should be reduced to get people back into the work force. At the same time TPD claims should be paid in instalments to avoid people focusing on lump sums in the hand instead of returning to work.

"We should consider the capacity to pay lump sum TPD in instalments. If people believe they can go for a lump sum they often do so, even to the detriment of their own health but instalments would change the way we look at rehabilitation and claims."