The Australian Securities and Investments Commission (ASIC) continues to review progress in repairing the total and permanent disability (TPD) insurance “safety net”, with gaps remaining.
The ASIC published a new report, REP 696, on how nine life insurers address the consumer harms identified in its 2019 Report 633, “Holes in the safety net: A review of TPD insurance claims” (REP 633).
TPD insurance provides a lump sum benefit if the insured person is injured or ill and unable to work again. Around nine million Australians hold TPD insurance, with most (some 86%) purchasing the product through their superannuation fund, with superannuation trustees responsible for arranging group insurance on behalf of their members.
REP 696 identified steps taken by insurers in response to REP 633 and covered around 75% of the Australian TPD insurance market, including all the nine major insurers offering TPD cover, with the seven reviewed in REP 633.
According to the report, the key changes primarily relate to restrictive TPD definitions and onerous claims handling practices. While some insurers are more advanced than others, ASIC found that all nine insurers:
REP 696 also identified residual gaps and areas needing improvement, particularly in the ability of insurers and trustees to use data to improve product design and claims handling.
ASIC deputy chair Karen Chester said the TPD review in 2019 revealed that TPD product design and claims handling resulted in poor consumer outcomes, and more still needs to be done.
“Important areas for improvement remain, such as better ways to store and use data. We found that data captured by insurers is often inconsistent or not in a searchable or reportable format, limiting its usefulness,” Chester said.
ASIC advised insurers to lift their data capabilities, invest more in their data systems to target claims handling problems, and design products to meet the needs of their target market.
“While [the] report focuses on steps insurers have taken in response to ASIC’s earlier work, superannuation trustees must also engage with TPD design issues and work on lifting standards for the benefit of their members,” Chester said.
“While some trustees have taken positive steps in this direction, others have more work to do. Of the nine million Australians that have TPD cover, most hold it through their superannuation fund. Trustees are clearly in the ‘driver’s seat’ in delivering good outcomes for their members through well-designed TPD cover.”
ASIC reminded insurers and trustees to “act now” to deliver the improvements needed to meet their design and distribution obligations commencing on October 05, 2021.
“In doing so, they also need to be mindful of their new obligations to act efficiently, honestly, and fairly (under s912A) when handling claims and providing superannuation trustee services,” Chester said.
