Calls are being made for a significant re-evaluation of the disability insurance sector on the back of a newly issued study.
Spearheaded by MLC Life Insurance (MLC Life), in collaboration with Freshwater Strategy, it unearthed the stark financial reality for a significant portion of Australia’s workforce when facing the prospect of disability.
The findings highlighted that nearly 50% of employees in Australia would find themselves with a financial buffer of merely three months or less if rendered unable to work.
The gender gap in financial preparedness is particularly pronounced, with about one-third of female workers reporting only a single month of savings, in stark contrast to their male counterparts, of whom 22% are in a similar financial position.
The investigation has brought into question the effectiveness of the default disability insurance offered via superannuation, which is primarily focused on total and permanent disability (TPD).
The data revealed a specific vulnerability among women, given the stringent requirements for TPD claims, including the necessity for the claimant to be totally and permanently disabled. This condition contributes to a lengthy waiting period, averaging 2.5 years, before claims are initiated.
Additionally, the research indicated a strong preference among the Australian populace for a transition towards regular income support instead of the traditional lump-sum payments for illness or injury, with a 57% majority favouring such a change.
MLC Life CEO Kent Griffin underscored the significance of reevaluating current disability insurance standards to better serve the changing needs and circumstances of policyholders.
“The current approach to disability insurance in superannuation is centred on a binary assessment of total and permanent disability, and while it works for some, the evolving needs of members and changing nature of disability requires a debate about the most appropriate default disability insurance system that meets these needs,” he said.
The study also critiqued the current TPD insurance model for allegedly encouraging claimants to focus on fulfilling eligibility criteria rather than prioritising their recovery. This system, according to the findings, may inadvertently lead individuals to seek disability claims even when a recovery or return to their previous job is anticipated, a scenario that 55% of Australians admitted they would consider.
In response to these insights, MLC Life – which recently bolstered its executive team with a newly created role – has introduced a green paper to ignite dialogue on enhancing disability insurance within superannuation frameworks. This initiative proposes a pivot towards income stream alternatives and advocates for a system that prioritizes health, wellbeing, and rehabilitation.
MLC Life chief group insurance officer Mark Puli stressed the importance of a collaborative effort among government entities, trustees, and the public to forge a more inclusive and effective insurance model.
“People shouldn’t have to choose between their health and financial support, inadvertently increasing their risk of developing a level of permanent disability that necessitates support under the National Disability Insurance Scheme (NDIS). This heightened risk places a strain on the sustainability of the entire health and wellness ecosystem and worker safety net,” he said.
