Some life insurers have been guilty of creating “junk insurance” through the use of new and unreasonable policy provisions, according to plaintiff law firm, Maurice Blackburn Lawyers.
In a submission to the Joint Parliamentary Committee on Corporations and Financial Services Inquiry into the Life Insurance, Maurice Blackburn described as a key issue the “manipulation and revision of (total and permanent disablement) TPD definitions”.
“Over recent years, some insurers have effectively created ‘junk insurance’ through new, unreasonable thresholds, eligibility rules and definitions, and disallowing entitlement to claim where a member has multiple policies despite continuing to receive premiums for the product,” the law firm claimed.
“The most pervasive change across the industry is the subtle but highly consequential substitution of the key legal test of ‘unlikely’ with the more onerous ‘unable’,” the Maurice Blackburn submission said.
It said the Superannuation Industry (Supervision) Act (SIS Act) allowed for early release of funds in a member’s retirement saving account in limited circumstances including “permanent incapacity”, which applied the “unlikely” test.
It said this was defined as: “If a trustee of the fund is reasonably satisfied that the member‘s ill health (whether physical or mental) makes it unlikely that the member will engage in gainful employment for which the member is reasonably qualified by education, training or experience”.
The Maurice Blackburn submission said any TPD insurance definition needed to be consistent with that condition of release, but claimed the insurance industry was interpreting that to mean it could not be less onerous, and had, in recent years, provided TPD definitions that departed substantially from the “[ermanent incapacity” requirement.
“Any comparison of products should consider whether there is departure from the SIS Act and whether the definition is onerous,” it said. “‘Unlikely’ has been interpreted by Australian Courts to require a consideration of ‘the real world’, namely market conditions and the practical prospects of the disabled job applicant obtaining and maintaining employment in those conditions, in assessing whether the person is unlikely to return to work given their injuries or illness.”
It said that, by contrast, the insurance industry applied ‘unable’ as a medical assessment without consideration of the ‘real world’.
“For instance, it is possible to argue that even a quadriplegic is theoretically capable of work and may not satisfy an ‘unable’ definition, notwithstanding that their actual employment prospects in a competitive employment market are negligible,” the Maurice Blackburn submission said.
