ASIC today released a report on how nine life insurers are addressing the consumer harms identified in ASIC’s 2019 Report 633 Holes in the safety net: A review of TPD insurance claims (REP 633).
Total and permanent disability (TPD) insurance typically 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, most (some 86%) do so through their superannuation fund, with superannuation trustees being responsible for arranging group insurance on behalf of their members.
ASIC’s report REP 696 issued today focuses on steps taken by insurers in response to REP 633. It covers around 75% of the Australian TPD insurance market. This group covers all the nine major insurers offering TPD cover, including the seven reviewed in REP 633.
REP 696 provides an update on insurers’ progress and outlines the key changes they have made and are planning to make to address consumer harm. The key changes primarily relate to the use of restrictive TPD definitions and onerous claims handling practices. While some insurers are more advanced than others, ASIC’s review found that all nine insurers:
- have started reviewing restrictive TPD definitions (such as the ‘activities of daily living’ disability test)
- are working with trustees for insurance in superannuation – some have made changes to policy wording
- have improved some claims handling practices (such as reducing the length of claim forms and tightening controls around requests for information), which should lower hurdles for claimants.
REP 696 also sets out residual gaps and areas where improvements are still needed, particularly in the ability of insurers and trustees to use data to improve both product design and claims handling.
ASIC Deputy Chair Karen Chester said, ‘ASIC’s extensive TPD review in 2019 revealed that TPD product design and claims handling resulted in poor consumer outcomes. While all nine insurers are working to repair the TPD safety net in response to our 2019 findings, our follow up work reveals more 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.’
‘To achieve good customer outcomes, insurers must lift their data capabilities. Insurers also need to invest more in their data systems to target claims handling problems, and design products to meet the needs of their target market.’
‘While today’s 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. 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.’
‘Insurers and trustees must also act now to deliver on the improvements needed to meet the 5 October 2021 design and distribution obligations. 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.’
In mid-2020 ASIC wrote to nine insurers to understand their actions and plans in response to the expectations set out in REP 633.
ASIC considered the demands on insurers due to the COVID-19 pandemic and limited the extent of inquiries by excluding requests for claims data.
ASIC will provide each insurer with detailed individual feedback, including areas where improvement is required. For example, closing data gaps by ensuring that data is stored in a searchable format rather than ‘free text’ fields that require manual review to be of any use – including capturing key claim events in the claims handling process. Insurers that have not delivered changes need to act now to ensure compliance with the law and good consumer outcomes.
ASIC will continue to monitor progress and hold insurers accountable to their commitments.
ASIC will also continue to engage with trustees to supervise their progress towards improving data quality and monitoring member outcomes.
ASIC and APRA will continue to work closely to drive data uplift by insurers and trustees. APRA’s new Superannuation Reporting Standard (SRS 251.0) Insurance will require trustees to report more granular data about insurance in superannuation, including TPD claims by assessment criteria.
ASIC’s 2016 review of life insurance claims, Report 498 Life insurance claims: An industry review (REP 498), identified several concerns with TPD insurance, including above-average declined claim rates, high rates of withdrawn claims and poor claims-processing times.
Following the findings in REP 498, ASIC undertook a detailed review of TPD claims, and in October 2019 released REP 633 which found industry-wide issues, including poor consumer outcomes from the ‘activities of daily living’ disability test, frictions in claims handling (contributing to withdrawn claims) and consumer harm arising from poor data. REP 633 set out our expectations of life insurers and superannuation trustees in addressing these issues.
Around nine million Australians hold TPD cover – some 86% do so through their super fund (APRA Life insurance claims and disputes statistics). ASIC undertook further work on the quality of superannuation trustees’ insurance data and analysis, which was also relevant to TPD insurance in superannuation. In December 2020, we released Report 675 Default insurance in superannuation: Member value for money (REP 675) which revealed, amongst other things, shortcomings with trustees’ data and analysis in relation to a range of insurance offerings.