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Super advocate takes FSC to task over TPD tests

Super Consumers Australia has called on Australia's life insurance industry to eradicate "junk terms" from total and permanent disability insurance, after the Financial Services Council committed to ensuring TPD cover wouldn't be impacted if people lost their jobs or were stood down or working less hours as a result of COVID-19.

The initiative, announced on Tuesday, will see insurers assess TPD claims resulting from an illness or injury occurring since the pandemic started based on the policyholder's working arrangements on March 11, the day when COVID-19 was declared a pandemic.

The move means Australians will keep the cover they had based on their working arrangements before the pandemic declaration.

"A claim for TPD is assessed on whether the person is expected to be able to work ever again. For this reason, the TPD definition used to assess a claim is based on the person's recent working arrangements," FSC chief executive Sally Loane said.

"Typically, this depends on the number of hours the person was working and whether they were in casual work before the illness or injury happened. Broadly speaking, the fewer hours you work, the stricter the definition used to assess your TPD claim.

"For most people, changes to TPD definitions happen only after their working arrangements have changed for six or 12 months (to cover parental leave, for example).  For others, this change can happen after three months, depending on the particular policy wording."

Loane said that with changes to TPD definitions occurring only after that amount of time, some Australians who lost their job, were stood down or had reduced working hours due to COVID, might have seen their TPD coverage change from June 11, three months after the World Health Organisation declared COVID-19 to be a global pandemic.

As such, Loane said the initiative is designed to ease any concerns people may have with their TPD cover by ensuring COVID-19 doesn't trigger any automatic changes to their cover.

However, Super Consumers Australia chief executive Xavier O'Halloran said the initiative is an acknowledgement that TPD cover is inappropriate for unemployed people and those working limited hours, pointing to ASIC report 633 released in October 2019, which revealed significant industry-wide problems with the design and claims handling process of TPD insurance.

O'Halloran cited the report's finding that claims made under these tests were five times less likely to succeed.

"Restrictive tests have no place in TPD insurance, whether during a pandemic or not. Super Consumers Australia is calling on funds and insurers to ban these junk terms once and for all," O'Halloran said.

"It is good to see the FSC acknowledge there is a major problem with restrictive terms in people's life insurance in superannuation. But, what the industry has proposed is a band aid solution to a problem it knew about long before the global pandemic."

The scheme is aligned with the government's JobKeeper payment, and runs until September 27. Claims must be lodged before 1 January 2021.

According to O'Halloran, the September deadline will "see people falling off a financial cliff".

"The forecasts are not showing a full recovery in unemployment levels for years, not months. The industry's plan will see some people caught out," he said.

"Everyone has been doing their part to lessen the impact of this pandemic. By aligning this scheme with the end of JobKeeper, the insurance industry is piggy backing off the government's program to avoid claims payouts and then pulling the rug once the support is gone."

Responding, Loane said the initiative is in place to "support consumers through the COVID period".

"September 27 is a sensible point to review when the initiative should cease, be amended, or continue in its current form," Loane said.

Read our full COVID-19 news coverage and analysis here.

Read more: TPDCOVID-19Super Consumers AustraliaFSCLife insuranceFinancial Services CouncilJobKeeperSally LoaneXavier O'Halloran
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