TPD ADL regime up for change

5 May 2020

The so-called Activities of Daily Living (ADL) regime used by some life insurers in handling total and permanent disability (TPD) cases is being canvassed for change, following evidence given to a key Parliamentary Committee.

The Australian Financial Complaints Authority (AFCA) has told the House of Representatives Standing Committee on Economics that the ADL represented a “very tough test”.

“It really should only have very limited application, if at all,” AFCA’s lead ombudsman, insurance, John Price told the committee.

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He was answering questions from the committee’s deputy chair, Labor’s Dr Andrew Leigh, who referenced a recent Australian Securities and Investments Commission (ASIC) report which suggested that claims denial rates for people under the ADL regime were close to 60%.

Leigh described the 60% number as “outrageously high”.

Later, in answering questions from Leigh the chief executive of major insurer, TAL, Brett Clark pointed to impending changes to the ADL regime.

Discussing TAL’s claims denial rate of 44% with respect to ADL, Clarke said: “Clearly there are opportunities to be better than that, and we're working with our industry and also our superannuation fund partners on what might be a better benefit design than ADL”.

“Will you commit to not relying on the ADL test as unemployment spikes? You're denying half the claims, and increasingly, as the jobless rate goes up, it's tempting to use the ADL test and keep rejecting half the claims,” Leigh asked.

Clark responded: “We're very aware of and sensitive to this issue in particular. It's important to understand, for the committee's benefit, that generally these ADL definitions will only apply after someone has ceased working for a six or 12-month period. In that intervening time, they will continue to retain their existing definition before it moves to an ADL definition. But we're very aware of and sensitive to this issue and working through it”.

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By all means let's address any inequities with ADL definitions. But the bigger problem is why were so many consumers reliant on ADL based TPD in the first place? With better planning and advice most of these consumers could have been covered by far better insurance products with much higher claim rates.

Unfortunately too many consumers don't bother to get decent insurance, because they have a false sense of security from the token default insurance in their super fund. Consumers who do make an effort to get insurance advice are finding it increasingly expensive and complex to obtain, thanks to regulatory overload. Both of these problems are caused by the government, and are easily solvable by the government with very simple solutions Remove default insurance from super, and reverse the regulatory onslaught against financial advice. The Parliamentary Committee should be looking much closer to home.

“Will you commit to not relying on the ADL test as unemployment spikes?" errr what? Is there some kind of relationship between severe disability whilst being unable to ever work again, and short-term unemployment?

Often an insurer will state that one's occupation will be the occupation in which you were "IMMEDIATELY" engaged in prior to to the date of disability.
Please explain the term "immediately" and what time frame is this subjective term applying to ?
If one was not be employed for 1 month prior to disability, does this then render the term " immediately" a major advantage to the insurer for the purpose of assessment and a major disadvantage to the claimant.?
The term "immediate" is usually referring to " right now " and so if a claimant is not engaged in an occupation right at the time of disability, what time frame do the have before the definitions start to change dramatically.
At this present time with many many people losing their jobs, this represents a major concern in the event of TPD claims, especially those under a superannuation fund and subject to Any Occupation definition followed by a very restrictive ADL definition.

Great summary, showing a real understanding of the issues at play here. Pity those that make the decisions havent got the same knowledge. Id imagine mental health claims will be forthcoming, so try to get tpd payout on that from a default adl policy if you can still dress youself and go to the toilet yourself.

Maybe we should start to think about registering the Financial Services Party and get ready for the next forthcoming federal election in 2022.?
The party could represent financial advisers, mortgage brokers, credit providers and their customers.
Anyone interested in heading to Canberra to play on the big stage ?

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