A broad-based call for greater innovation in the TPD product space is being driven by a consensus that the world continues to change around an offer that struggles to keep pace.
This is one of the assessments reached by a group of stakeholders at a TPD Round Table event conducted earlier this month (see: Zurich TPD Round Table Part 1).
Framed, importantly, within the context that most TPD claims are paid, there nonetheless exists a potential crisis around the relevance of the Total and Permanent Disability product as currently offered in this country, and the extent to which it remains sustainable and fit for purpose.
In the first of a series of five video discussions contemplating whether the TPD offer for consumers remains fit for purpose, it becomes readily apparent that the Australia of today, in a number of crucial areas, bears little resemblance to the Australia of the 1960s, when the TPD product offer was originally launched. Those areas include:
- The economy in 1960s Australia was still ‘riding on the sheep’s back’ with a workforce that comprised a much higher cohort of blue collar and manufacturing workers
- Workplace injuries – which were such a critical factor in the relevance of the TPD offer in the 1960s – are much less prevalent today, due in no small part to the improvement in workplace safety standards
- Recovery and rehabilitation service options were either non-existent or curtailed in comparison with services now offered
- Medical options available to Australians suffering illness or injury events were significantly limited in comparison to the options that are now available
- The changing workplace environment in which recent research suggests Australian workers in 2023 might hold ten very different jobs in their career, compared with 1960s Australia, where one or two career jobs was common
The TPD Round Table panel considers these and other demographic and environmental factors, such as the rise in mental health claims which, in combination, has seen mounting pressure placed on a TPD product offer that seems to be struggling to keep up with the social and consumer environment in which it is intended to deliver value and peace of mind.
In a present day environment in which TPD premiums continue to climb, where lapses are increasing and – critically – where significant pressures apply to affordability for so many Australians, the consensus call among the TPD Round Table panel was for the sector to act, to reimagine, and to innovate.
From where that innovation derives depends in part on the perspective of the stakeholder, but based on the nature of the positive TPD Round Table conversation, product manufacturers, regulators and other stakeholders would ignore adviser and licensee input at their peril (see also: TPD Sustainability – What Advisers Say).
According to reliable sources, the highest proportion of TPD claims is being sourced from DEFAULT cover in superannuation, NOT retail advised TPD cover. It has to be said with recent increases in TPD premiums that effectively retail TPD clients are subsidizing the cover provided to members of super funds on a default basis.
There is an obvious attack point if insurers and reinsurers are worried about increasing TPD claims and in particular mental health claims and the TPD policies.
This nonsense has gone on for too long. Our friends the insurers still think there’s a quick quid to be made by offering default NON-UNDERWRITTEN COVER to any man and his dog who has a job. That’s an inbuilt antiselection device. The insurers have long argued that the TPD claims won’t have a “long tail” because their contracts with the super trustees are generally limited to 3 years. But when the insurers walk away, as Comminsure did a decade ago from Australian Super, any TPD cases afoot at that point in time still belong to the departing insurer.
Of course the industry funds won’t like a suggestion that they undertake some minimum underwriting or at least restrict the actual default sum insureds until such underwriting occurs. They will cite additional costs. They could even take COMMISSIONS, ye gods. It’s also clear that a number of pre-existing exclusions that now apply to default cover haven’t really worked.
A few years back, and experienced Melbourne based risk advisor compiled evidence that certain ambulance-chasing law firms were identifying already disabled persons and suggesting they take a job for the minimum period, enroll in the obligatory industry fund, and make a claim on the default TPD cover, after the qualifying period. Some of the antiselection devices imposed by trustees might have eliminated that issue to a degree, but if there’s dollars to be earned, you can be sure there will be a way found.
But unless there’s been a change in actuarial learnings, the capacity to offer default non-underwritten cover to the hoi polloi has always been limited by the strength of fully underwritten insurance to be found in the Statutory Number 1 Fund and I assert that is one of the factors driving the “gouging” of existing business. That fully underwritten retail insurance gets there from people like us- the much maligned, over supervised and poorly paid suckers known as financial advisers.
And we all know (maybe not ASIC) that LIF has caused a 50% reduction in genuine underwritten retail life risk business. There has to be an end to this game but who will call time!
The other issue that’s long bothered me about mental health claims being paid under a TPD benefit, as distinct from an IP benefit, is how rigid is the application of the very tight criteria in any TPD definition?. My limited understanding of mental health is that very few psychiatrists are willing to state emphatically that a disablement related to a mental health condition is both TOTAL and PERMANENT. Until you see some case histories we really won’t know.
My suspicions are that at least some of the claims underwriters in our life insurance offices, post Hayne, are feeling under pressure from external actors such as CHOICE and one of the other “consumer” organisations populated by lawyers who have never actually practised. Choice for example has had a long-standing campaign against TPD calling it, amongst other things, “rubbish insurance”. Funnily enough they have not proposed an alternative.
I want to see the full evidence provided before I agree to any proposition from the insurance industry that the TPD premiums should be increased and/or definitions tightened.
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