Financial advisers will need to be vigilant when recommending TPD policies with an ‘Any Occupation’ definition after a recent court case removed the distinction between ‘unable’ and ‘unlikely ever’ to return to work after an injury.
This shift will mean that future TPD claims may be more onerous for blue collar workers who could retrain for another occupation, claims BT Life Senior Manager, Product Development, Jeffrey Scott.
Speaking at a recent MDRT NSW Chapter meeting, Scott said the Shuetrim Case [2016] NSWCA 68 – which was heard in the Court of Appeals of the NSW Supreme Court in April 2016, had effectively raised the standard for an ‘unlikely ever’ definition to the point it could be considered the same as an ‘unable’ definition.
“In the past ‘unable’ was perceived as a more stringent definition than ‘unlikely’. Previous case law interpreted ‘unable’ to mean 95% certainty of never returning to work, compared with a 50% certainty with ‘unlikely’,” Scott said.
“The Shuetrim case states that ‘unlikely’ now means a very high probability that a person could not return to work in their chosen field or another field based on their education, training and experience.”
“…clients with ‘Any Occupation’ TPD policies, may discover the claims process with an ‘unlikely to ever return to work’ definition may become more onerous…”
Scott said while the decision was causing concern for actuaries within life companies which had differently priced the risks on these two definitions, advisers should also be concerned about the impact on their clients.
“Financial advisers and their clients with ‘Any Occupation’ TPD policies, may discover the claims process with an ‘unlikely to ever return to work’ definition may become more onerous. The decision in the Shuetrim case implies it is not unreasonable to require people retrain for another job. This will likely have the greatest impact upon blue collar workers who could retrain to a different job with a similar level of remuneration,” Scott said.
“It is unlikely that a brain surgeon with seven years of university studies is going to be affected by this ruling, as it would be too difficult to retrain to a similar level of specialisation. Alternatively, someone who could be retrained in a few weeks or a couple of months may be disadvantaged by this decision.”
Scott stated that many life insurance companies already have terms and conditions requiring customers to undertake reasonable retraining programs under their TPD policies, and this is likely to increase following the Shuetrim Case.
Scott suggested that advisers may want to consider split TPD policies that offered ‘any occupation’ as well as ‘own occupation’ to their clients.
Editor’s Note:
While a significant outcome from this case has been the need for insurers to reassess the relative meaning of ‘unable’ and ‘unlikely ever’ clauses within a TPD definition, the main cause of the claim related more to Mr Shuetrim submitting that the insurer ‘…breached its duty by failing to refer to particular medical and psychiatric opinion as well as the vocational assessment report.’ These breaches were held by the court to be ‘…so unreasonable as to vitiate the insurers’ decisions’ to deny the claim.
Click here to access the full judgement of TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim [2016] NSWCA 68 (7 April 2016)…
In this month’s RiskInfo eMagazine, Scott also addresses the issue of how much disclosure is appropriate for advisers and their clients, given recent changes to the Insurance Contracts Act. That article can be found here.
Discarding the similar remuneration aspect of the debate, I once had a discussion with a heart surgeon client about the value of his TPD cover considering he had income protection insurance. Our conversation centred on his ability to return to work as a GP in the event that he suffered an incident affecting his manual dexterity. He informed me that it would be virtually impossible to retrain and regain the necessary qualifications to practice as a GP in the time he had left as a medical professional. In this respect he believed the clause, ” . . . in any capacity for which he was suitable qualified and experienced,” could not be applied in the event of a TPD claim in his case.
The introduction of the, ” . . ever return to remunerative work in any occupation,” contention is a farce invoking an in-house joke that it could be argued anyone and everyone could be employed as a stamp licker in the local mail room!
While it is obvious an open definition of TPD would lead to excessive and sometimes fraudulent claims, if TPD cover is to be sold and purchased with a high degree of confidence by both the provider and the insured, into the future there needs to be an industry wide core definition able to be consistently tested against every claim.
We’ve got 2 definitions in our office between advisers, “If you can operate a wheelchair with your mouth, you’re probably not going to get paid out” and “Anyone can sit in a call centre and press the ‘answer’ button on a phone”. It really is hard to convey to a client the value of an ‘Any’ occ definition when claims lack transparency.
Yes, a return to the 60’s and 70’s where a client had to become a “vegetable” by definition in order to get a TPD claim paid under an Any Occupation cover, will result I suspect in,……. that most will never ever be sold by advisers.
It seems that insurance companies are finding new ways not to pay claims with some limiting their exposure by replacing previous fair contracts with inferior ones.
This is not about providing security for families with insurance.
It’s about eradicating the independent adviser, by direct marketing that preys upon the unsuspecting consumer in the name of profits.
Insurance companies seem to forget that the large buildings they’ve acquired over the last 100 years or so have been largely predicated on the efforts of a sales force that was able to point out the merits/benefits of insurance…..” just in case”
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