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ABI announces TPD change

01 June 2010 Breaking News

"Irreversible life-changing disability" will replace "total permanent disability" in critical illness insurance policies, if recommendations by the Association of British Insurers (ABI) meet with industry approval.

The new definition has been informed by consumer research and will be the subject of a consultation throughout June.

It is the latest attempt by the ABI to secure industry-wide consensus on the best way to overhaul a definition under which over 50% of claims are currently declined.

Last November insurers rejected a proposal to remove the TPD clause entirely from policies and replace it with a set of carefully worded definitions.

Following this set-back an industry workshop agreed that a preferable option would be to create a standardised definition based on a review of existing wording used by insurers, and produce educational materials alongside it.

Four consumer focus groups were then convened at which participants identified irreversible life-changing disability as the clearest definition, backed also by the ABI working group.

"This is the approach consumers seem to prefer," said Nick Kirwan, assistant director of health and protection at the ABI. "'Life changing' has the right connotations for them - it's a change, an event that takes place, but it also gives the impression of severity.

"A lot of consumers when they take out policy do not get as far as reading definitions. But if you just read that heading they are going to have pretty good idea of what that means."

Proposed wording

Beneath this definition are five different variants that may be offered by insurers:

Own occupation irreversible life changing disability - unable to do your own occupation ever again

Suited occupation irreversible life changing disability - unable to do a suited occupation ever again

Any occupation irreversible life changing disability - unable to do any occupation at all ever again

Irreversible life changing disability - unable to do three specified work tasks ever again

Irreversible life changing disability - unable to look after yourself ever again

Kirwan said that a positive outcome of the workshops had been consumers' engagement with these variants and ability to identify the most comprehensive cover.

At the end of the consultation, launched today, dependant on approval, the ABI will issue a renewed statement of best practice for insurers at the end of August. Insurers will then have a year in which to implement it.

Other changes that will be included in the guidance include slightly amended cancer and Parkinson's disease definitions and a new terminal illness definition which Kirwan said represented a "little bit more of a  radical overhaul", reflecting the improved survival rates for diseases once regarded as terminal. A standard definition for pre-existing conditions under child cover will also be included.

While just 3% of critical illness claims are made for TPD, 55% of these are declined and disputes about it account for 35% of complaints about critical illness made to the Financial Ombudsman Service.

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