Big insurer TAL is calling for the Government to impose a time-limit on when claims can be made for so-called 'living benefit’ policies, in circumstances where insurers are currently being forced to assess claims long after the actual incidents occurred.
Any move by the Government would require changes to the Insurance Contracts Act.
TAL chief executive, Jim Minto has pointed to the existence of major problems for the industry as a result of what he describes as “open-ended” disability claims arrangements which can see insurers assessing claims going back many years.
Minto and a number of other life sector chief executives have already pointed to an upsurge the lodgement of late notified claims having been a factor in a rise in premiums, including in the group life sector.
TAL said it was for this reason that tis initial submission to the current Financial System Inquiry had called for a time limit to be placed on when claims could be made.
“A big problem facing life insurers is that a claim can be made for a disability benefit many years after the customer has first stopped work and even ceased to have cover,” Minto said. “This means life insurers are forced to assess 'total and permanent’ disability (TPD) claims for when someone was once covered and may even currently be working at the time of the late claim.”
He said a big problem with the current open-ended disability claims arrangement was that the greater the distance between a claimable incident and the time a claim wass made, the harder it became for both the insurer and the claimant to successfully process the claim.
Minto said this was partly because insurers often had to form a view using extremely patchy and inconclusive evidence to determine what a former or current customer’s condition was at a much earlier date.
“As well as being difficult to determine due to insufficient evidence, late notified claims could also have potentially harmful implications for life insurers costing models,” he said. “That’s because these unaccounted for long dated claims make it harder for insurers to adequately calculate their 'incurred but not received’ reserves and capital needs.”
Minto pointed out that Section 54 of the Insurance Contracts Act – which encompasses life insurance as well as general insurance policies – currently prevented the denial of a claim merely because it was notified late.
