Choice’s TPD junk policy claim based on old data, ignores code of practice improvements: FSC

Financial Services Council (FSC) has refuted consumer advocate Choice’s and its partner advocate Super Consumers Australia’s (SCA) super figures and their claim total and permanent disability (TPD) policies in super are nothing but junk, saying Choice’s figures are based on out-of-date 2016-17 data that ignore “significant” improvements after the Life Insurance Code of Practice came into force.

In a statement released yesterday, Choice said 12m Australians held TPD insurance in their super but many of them, eg those working casually, part-time or in “hazardous” jobs, might only have a 40% success rate when making TPD claims because they had to pass very tough activities of daily living (ADL) tests.

Investigative journalist Daniel Herborn at Choice partner advocate SCA, claimed because it was “extremely difficult to succeed in a claim” where the ADL tests applied, it made the insurance “junk”.

FSC CEO Sally Loane told Insurance Review Choice’s figures were wrong. She cited APRA figures based on 2016-17 data showing 12m super accounts with TPD policies – not 12m Australians with TPD policies in their super accounts. According to ATO data, there were 1.57 accounts per Australian in 2018.

“(W)e strongly refute (Choice’s) claims … consumers are being sold ‘junk’ insurance,” Loane said. She said TPD in super provided “good value for money”, paying out more than 90¢ in the dollar.

Loane suggested Choice’s figures were based on an ASIC report which had relied on out-of-date 2016-17 data, mostly from before the Life Insurance Code of Practice came into force.

She said the Life Insurance Code of Practice, which was introduced on June 30, 2017, to improve results for consumers, was working and had made “a significant difference”.

Loane said, in an initiative “unique to the Australian life insurance market in its granularity and timeliness”, KPMG, on FSC’s behalf, was collecting TPD claims data every six months.

KPMG-FSC latest data to July 2019, showed 86% of all TPD claims were paid in the first instance. That included claims against all definitions, including ADLs that were used internationally and developed by the medical community.

The latest data further showed, in the six months ended June 30, 2019, there were 11,604 TPD claims, of which only 6% were assessed by ADLs, and of those 61% were paid, representing a 52.5% improvement in claims paid since 2016-17.

The rate at which TPD claims were withdrawn had also significantly improved. The latest data showed only one in 19 claims were withdrawn – a 58% improvement on 2016-17.

Loane said information in the market was incorrect and in January, FSC refuted claims by ABC’s 7.30 program that “almost 500,000 workers” had very narrow ADL-based TPD cover.

FSC also reminded ASIC last year (2019), after the release of its Holes in the safety net: A review of TPD insurance claims report, it had relied on out-of-date 2016-17 data.