Rethinking automatic acceptance limits

At least a part of the problem with total and permanent disablement (TPD) insurance appears to have been automatic acceptance limits which were too competitive and therefore too generous. This is part two of a TPD Super Review roundtable.

Mike Taylor, managing editor, Super Review: So we've talked a lot about what's wrong and there has been some reference to product design and I think automatic acceptance limits. Is it a case of the product design? I mean, is it fundamentally broken, can it be fixed, and how do you fix it?

Brett Clark, chief executive, TAL: Look, I wouldn't describe it as broken but the patient does need a little bit of care.

It is true that the risk management techniques that insurers displayed in designing these offers left a little bit to be desired. What do I mean by risk management techniques? Automatic acceptance, benefit design, definition, claims management techniques, all these sorts of things have contributed to the issue. So I'm a person who believes that the insurers and fund trustees need to face up to what could have been done better.

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It can't all be just about the lawyers or members getting better informed about their insurance cover. Insurers need to take some responsibility for this as well. No one forced us to design automatic acceptance limits in a particular way and if you talk to some people in our regulatory bodies, they would share a similar view to that.

So what does that mean in terms of going forward? I think we've seen some changes in the way underwriting techniques are applied in group funds, automatic acceptance limits, tightening up those sorts of things. So these risk management techniques are tightening up and I think will continue to trend in that direction. I think definitions will also change, we're seeing some of that in the market also -not necessarily getting tighter but providing more clarity. More clarity to insurers, to claims management folk in particular who can manage the claims and assess the claims in a more objective way and take some subjective views outside of the claims management framework. So all of these things are moving naturally in that sort of direction.

Russell Mason, partner, Deloitte: I think Brett's right, I think we've got to rethink automatic acceptance limits. I mean, for someone to very easily join a fund and get up to $1.5million of automatic acceptance, it's just open to so much abuse. It has escalated over the last few years, so I think things like that, so we can truly help those members that are deserving but not allow it to be rorted. I often wonder, too, what we've got to do to stop people getting multiple claims - not being insured at the same time with different insurers but being paid out TPD, re-joining another fund and being paid out TPD, and it happens.

GM: Or re-joining the same fund.

RM: Or re-joining fund, yes Geoff. It's [a case of] how many times can someone be TPD? Now privacy legislation ties the insurer's hands behind their back. We've got to start to look at addressing that so that when someone is paid out and if they're assessed as genuine TPD then surely they can't re-join a fund a few months later under questionable circumstances and be paid out again and again.

It's not a big part of the industry but it's one of the many problems I think insurers face.

John Berrill, lawyer: But what Brett can do is have a term of his policy that says that if you've been paid out a TPD benefit you're not eligible for cover elsewhere

RM: And policies have that John but they can't be enforced. How does Brett enforce it?

JB: You make it as part of your claims process, "Have you been paid a TPD benefit before?" "Yes." "You're not eligible."

AM: People say, "No," easily, but how do insurers actually share that information amongst themselves?

JB: In a claims process, so if you ask someone as part of a claims process, "Have you had a previous TPD payout?" and they say, "No," well I mean you can check to see what super funds they've got and get authorities from them to check how they were paid or what they were paid from those funds.

RM: And if they refuse, John? And they will, they'll refuse.

AM: That's a privacy issue there.

JB: But that's fraud. And that's part of any claims process for any benefit. So if fraud's going to be your problem then that applies to any benefit, whether it's a primary benefit, whether it's a benefit where someone's previously been paid out, whatever. Fraud is there and that's what dispute resolution mechanisms are for.