The problem with total and permanent disablement is that there is not a common and agreed definition being applied. This is part three of a Super Review TPD roundtable.
Jocelyn Furlan, consultant: There's another aspect to it too and that is that the definition of TPD is not a common definition, it's the definition in the trustee or the insurance policy and there are plenty of trustees and insurance policies which define TPD as being [that] more likely than not that you will not return to work in something that you're suited by education, training or experience.
You only need to be 50 per cent plus a bit more likely than not, not to go back to work. You don't actually need to be what we and the community regard as the definition which is "never able to work again."
So there are some people who, at the point of decision-making, look more likely than not that they will never go back to work in an area that they're suited by education, training or experience. They may actually recover and that doesn't mean that there's a breach of the definition of them meeting the definition at the time and then going back to work and being eligible for another total and permanent disability benefit.
I think that's one of the biggest issues and I'm not quite sure how you tackle that. In terms of judicial interpretation is this a defined term? It doesn't have a common meaning that we all understand as laypeople "that this means that you will never work again", because that's not what the definitions say.
John Berrill, lawyer: In benefit design, I mean a couple of comments. First of all, the definition of TPD really hasn't changed much in the last 20 years and the automatic acceptance eligibility hasn't really changed much in the group market in the last 20 years. In fact, if anything, the restrictions have been imposed rather than not, in the sense that the introduction of the at-work test and the active employment test, that's a phenomena that's occurred in the last five to ten years.
Angie Mastrippolito, chief executive, NESS Super: No. You've got a lot of experience here. We've got 90 years in the industry here.
Russell Mason, partner, Deloitte: John, I've been in this industry 30 years. It was there 30 years ago.
JB: I've been doing it for 20 years and I did not see hardly any at-work tests.
Geoff McRae, actuary, Rice Warner: When most of the cover was under corporate funds they all had an at-work test.
AM: Yeah, it was always at-work test.
JB: Okay, I'm wrong.
AM: And the transition from corporate to industry I think is where the issue has been. Because in a corporate fund you wouldn't employ someone who's sick, right? So you had a very, very, good view of their actual medical condition.
When you're going into this automatic cover where you have really no view of their medical condition, you have no association with them. You are covering risks that you weren't envisaging in a corporate fund. So the concept of automatic cover actually worked better from a corporate fund than it does in an industry fund.
Brett Clark, chief executive, TAL: I think that there's a bigger picture here around design of group insurance in that group insurance 30 or 40 years' ago was designed to be consistent with an employment relationship.
JF: And with the employer participating in that process.
AM: That's exactly right.
BC: Within corporate funds. As group insurance evolved out of corporate funds and into public offer funds, industry funds or retail funds, we took concepts that were from a risk management perspective appropriate to reflect an employment relationship and tried to apply them when the employment relationship was much, much looser, and the natural risk management that applied through that design principal...¨
AM: Is very different.
BC: ¨...faded away. And I think now most reasonable people would have recognised that but with the way the industry was evolving and the volumes and everything seemed to be going along okay, people were saying, "Well this looks like it works."
AM: They lost so much of it, yeah.
BC: But I think we've now realised that those principles that might have been appropriate 30 years ago actually don't work in the context of the public offer funds that we have today and we're now seeing a response to that and more sensible benefit design reflecting the nature of the members and the way they join and exit these funds.
JF: So it begs the question, does group life insurance still belong in superannuation or does it belong with employers?
JB: I really believe that the provision of life insurance through superannuation, through the superannuation system is actually now a fundamental component of the Australian welfare system. Without it hundreds of thousands of Australian families would be in financial turmoil and I think the nature of the employment arrangement has also moved away from one where we will provide a range of employment benefits for you and there's a more paternal, caring nature, if I can describe it that way around the employment relationship. So super funds have really jumped into that breach and have a really important role to play and I strongly believe that insurance in super is a critical part of the financial¨
JF: The capitalisation of the workforce would support that as well.
GM: And you wouldn't get the same take-up rate. Nothing like it.
JB: I mean underinsurance in Australia would be enormous if it wasn't for superannuation.
AM: And particularly with industries and the high-risk industries because we're a high-risk industry, these are workers who would not normally be able to get insurance because they work at heights or they work underground or they work in very precarious situations, so it's been a very, very good mechanism to cater for occupations that normally wouldn't be insured. So I think that's a very valuable benefit.
GM: And what is happening now, although it's a slow movement, is that the employer is being brought more back into the relationship. Where claims experience has got out of hand that is where, as I say, it's a growing arrangement. But where the employer and the workers' comp, their offering, and the disability cover through super and the HR people who are managing the sick leave where those three elements can be combined, well management of them can be done mutually, you can do a lot more for managing cases, getting people back to work who can, with early rehab, be put onto the right track much better than the way things have trended in the last 15 years with the employer moving out of the loop.
JF: Although I think that's one of the other benefit design issues that I have - where there's an increasing and valid and well-meaning push towards rehabilitation, but the definition requires people to be off work for six months before they can claim, and the chances of someone going back to work after six months off and being successfully rehabilitated are just about zero.
To me there's a fundamental disconnect between the way the super system works in terms of provision of group life cover and efforts at rehabilitation, and I think until that mismatch is kind of thought through and people really figure out, "Well are we in the business of rehabilitating people? Or are we in the business of paying people who have been off work for six months and therefore are likely to qualify for the definition and never work again?" Because I think at the moment there's a real tension there and I don't think that's resolved in anyway.
GM: No, and it's something which is still being worked out and I think it will take some more time to work out. But in benefit arrangements for a particular group of employees who have income protection, often with a waiting period of a lot less than six months, you have TPD with three or six months and then you have workers' comp protection as well with essentially no waiting period that if you're monitoring that total package of benefits together that you do get a chance of deciding early is rehabilitation appropriate in this case? And should it be arranged through the workers' comp or through the employer or through the super as it might be? And because you're getting in contact with them early, the problem is people sitting around thinking how bad they are and that they'll never get better. You let them do that for six months and your chances of putting effective rehab in place is zero.
JF: Which is the best body to have ownership of that though? Is it the workers' compensation insurer? Is it the superannuation fund? Is it the employer? Someone's got to bring all those people together, and I don't know, Brett, whether you work with WorkCover when you're assessing a claim in group life for TPD, I have no idea, but it seems to me that that's three separate bodies that, I completely agree with you, all need to be involved for a successful rehabilitation. And my question is, well who should be and/or who is taking the lead on that to bring all those groups together?
GM: Well it seems to only work effectively where it ends up being coordinated by major employers which for the small end is a problem unless there's some other coordinating body, be it some government department or something, but that's not likely to happen in the foreseeable future. But where a major employer is involved, the culture has to be right, in that some major employers don't want to have a bar of disabled people; they want them out of the door as soon as possible, they couldn't care less if it blows the client's experience.
AM: It also becomes dangerous for them to continue working I think. So I think there's...
GM: Yeah, so there's a whole range of things