The corporate watchdog has found 60% of total and permanent disability (TPD) activities of daily living (ADL) claims are declined, five times higher than the average decline rate for other TPD claims.
The Australian Securities and Investments Commission (ASIC) said many consumers could not rely on TPD insurance cover when they needed it most after it found a significant industry-wide problem with the design of TPD insurance and the claims handling process.
It said nearly half a million Australians were covered by a very narrow TPD policy definition that only paid out in the most catastrophic circumstances, if they were unable to perform several ADLs such as feeding, dressing or washing themselves.
It found that the poor claims handling process led to 12% of claims lodged with insurers failing to proceed with a decision as consumers withdrew their claims.
ASIC Commissioner, Sean Hughes, said: “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.
“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.”
Hughes said superannuation trustees had a crucial role to play in the delivery of life insurance to their members and needed to act in their members’ best interests to provide access to affordable insurance products that were suitably designed for their members while safeguarding super balances from inappropriate erosion.
ASIC said the review identified that insurer practices such as difficult lodgement processes, poor communication practices, multiple requests for medical assessments, and excessive delays were just some of the problems consumers found during the claims assessment process.
It also found that claims from AMP, Asteron, and Westpac had declined claim rates higher than expected, and Asteron’s decline rate was double ASIC’s prediction.
ASIC said its data looked at 35,000 TPD claims and commission consumer research which focused on:
- AIA Australia Limited;
- AMP Life Limited and the National Mutual Life Association of Australasia Limited (part of the AMP Group of companies);
- Asteron Life & Superannuation Limited – previously Suncorp Life & Superannuation Limited;
- MetLife Insurance Limited;
- MLC Limited;
- TAL Life Limited; and
- Westpac Life Insurance Services Limited.