ASIC, APRA target insurers' TPD product sustainability

Regulators are putting the pressure on life insurers to manage problematic issues arising from total and permanent disability (TPD) products offered across the retail and group insurance channels, a recent roundtable heard.

ASIC and APRA warned providers they need to take "decisive action" to address the sustainability challenges facing TPD insurance and put consumers' needs at the forefront.

The regulators' roundtable of life insurance chief executives, which had representatives from 19 insurers and reinsurers, Treasury and the Council of Australian Life Insurers (CALI), discussed several issues facing TPD insurance.

Participants overwhelmingly agreed on deteriorating claims experience across group and retail markets, the rising incidence and complexity of mental health-related claims and consumers forced to pay higher premiums as a result.

They agreed industry action is most needed in the areas of product design and the group and retail TPD markets.

In group insurance, APRA and ASIC encouraged insurers to maintain proactive and constructive engagement with trustees and be open to facilitating joint insurer trustee efforts to drive better outcomes for members.

"Structural shifts in claims patterns are often managed through premium increases and reduction in cover rather than more fundamental product redesign. This reflects trustees' competing priorities and resources required to implement more complex product changes," the regulators said.

The retail sector, meanwhile, is introducing new TPD product designs, yet there is low take-up and existing products continue to dominate the adviser-led market.

Another issue is if the appropriate pricing of existing products reflects the latest TPD risk profile.

On this matter, APRA emphasised the importance of robust reserving and pricing practices, so assumptions keep pace with the latest claims experience and emerging risk trends.

ASIC said insurers must continue to handle claims in accordance with the relevant policy terms and their legislative obligations.

For product design, participants debated what a "future fit protection product" for permanent disability and mental health could look like. This includes products that better reflect recovery pathways, episodic capacity and evolving patterns of work.

"While participants highlighted legislative constraints are limiting the scope for product change, there are examples where some insurers are actively exploring and piloting new approaches within the current settings," the regulators said.

Moving forward and in achieving sustainable outcomes, the regulators "require insurers to take decisive action in areas within their control, including the consistent and effective application of sound insurance risk management practices."

Research from Rainmaker found TPD claims take much longer to process.

Of the total death claims (13,000) and TPD claims (30,000) studied, the majority (76%) of death claims processed in just under two weeks and about 17% were settled between two weeks to two months during the period.

However, when it comes to TPD claims settlement, insurers are taking considerably longer.

Merely 14% are processed within two weeks, with 23% taking more than six months to complete, in comparison to 1% in death claims for the same period.

Last year, ASIC investigated AustralianSuper for sitting on death benefit claims that exceeded internal targets of four months.

Most recently, though, AustralianSuper's group insurer TAL said about 35% of the super fund's TPD, income protection and terminal illness have been initiated digitally.

The median time to lodge a claim online has reduced to five business days. TAL, however, did not confirm how long it now takes AustralianSuper to payout claims in time for the article.