ASIC finds persistent TPD issues

The corporate watchdog has pointed to continuing insurer gaps in total and permanent disability insurance (TPD) and said superannuation trustees have a key role to play in making improvements to consumer outcomes.  

The Australian Securities and Investments Commission (ASIC) report on TPD insurance said in terms of definitions for insurance within super, most insurers identified challenges in collecting the value that TPD products offered to consumers in group policies. 

“Trustees should continue to review whether their insurance strategies and offerings are meeting members’ needs and providing value for money,” ASIC said on changes to restrictive definitions. 

“Trustees should proactively consider how they can refine the design and pricing of default insurance (including terms and conditions), working closely with insurers.  

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“Trustees are often better placed than insurers to collect member data, such as demographic and work characteristics, which are needed to evaluate the effects of eligibility criteria and the effect of restrictive definitions on different member cohorts.” 

On claims handling practices, trustees needed to do everything that was reasonable to pursue a member’s insurance claim if the claim had a reasonable prospect of success. 

“In light of these obligations, trustees should proactively address hurdles that members face when making a claim – trustees are better placed than insurers to see the members’ entire journey from obtaining cover to claim decision,” ASIC said. 

On improving poor data and data usability, the regulator said trustees should collect and analyse data to monitor and review outcomes to better meet their regulatory obligations, including to promote the best interests of their members. It said this also included analysing outcomes for members on the default insurance settings. 

“Trustees should consider embedding detailed data-sharing arrangements in service level agreements with insurers so they can access the data required to monitor member outcomes, and insurers can access data to manage consumer harm (e.g. pre-lodgement information on claims),” ASIC said. 

ASIC noted that since its last report into TPD, several trustees had worked with insurers to make “positive changes” to new or existing arrangements such as: 

• Removing the activities of daily working (ADW) definition; 
• Adopting a new ADW definition (incorporating mental illness); 
• Removing the activities of daily living (ADL) definition and/or the minimum average hour requirement; 
• Adopting a new ‘education, training or experience’ definition to replace the ADL definition; and 

Amending the ‘everyday work activities’ (EWA) definition to increase the consecutive period of unemployment before the EWA definition applies, from six months to 16 months. 

“Insurers and trustees should start improving TPD definitions as early as possible before renewing insurance arrangements, and consider mid-term amendments where possible,” ASIC said.