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New name for TPD given green light by consumer focus groups

July 2010 News

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

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.

‘A PRETTY GOOD IDEA’

"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 a policy do not get as far as reading definitions. But if you just read that heading they are going to have a pretty good idea of what that means.”

Independent claims consultant Karin Lloyd welcomed the idea of giving TPD a new name. “This better reflects what it actually does,” she said.

She added, however, that some of the detail may be “a little bit too restrictive”. For example, there is a proposal to include an exclusion for cases where relevant clinical specialists could not provide a “clear prognosis”.

“I am suggesting an alternative to that for them,” she said. “It reads too much like a get out clause. There is no basis that a customer can understand how that decision is going to be made. Lots of people will not have a definitive prognosis and treatment now is all focused on improving their quality of life. You want your policy to reflect that and this is going counter to that. We know as an industry what we mean but that does not help the customer. We know we will operate with discretion and will be kind to people with neurological conditions for example, but we need to say something that better reflects that.”

Jeff Cook, head of UK life and health underwriting at Swiss Re, also described the proposed name change as an improvement.

“It is particularly helpful because it highlights the inability to perform the job or specified tasks ever again, and we feel this adds extra clarity,” he said. “That said, a change of name alone will not be enough to achieve the aims of this exercise. Education and claims handling are crucial.”

Zurich has developed a protection guide to help customers understand the entire process from application through to claim and Phil Brown, underwriting and claims director, believes that education is vital.

“From our point of view we want to focus on expectation management and a high level of transparency wherever we can but also the correct level of vigour at the new business underwriting stage,” said Brown. “What everyone wants is certainty at claims stage. We do not want arbitration and debate.”

CONSULTATION

Following consultation on the changes throughout June the ABI will issue a renewed statement of best practice for insurers, which Kirwan expects to be ready by the end of August. Insurers will then have a year in which to implement it.

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

IRREVERSIBLE LIFE-CHANGING DISABILITY

The ABI is proposing the following headings and definitions:

1. Irreversible life changing disability – unable to do your own occupation ever again

2. Irreversible life changing disability – unable to do a suited occupation ever again

3. Irreversible life changing disability – unable to do any occupation at all ever again

4. Irreversible life changing disability – unable to do three specified work tasks ever again

5. Irreversible life changing disability – unable to look after yourself ever again

For the first three headings, the following definition is used as standard:

“Loss of the physical or mental ability through an illness or injury [before age x] to the extent that you are unable to do all the essential duties of your [own/suited/any] occupation ever again. The disability must be expected to last throughout life with no prospect of improvement, irrespective of when the cover ends or you expect to retire.”

Occupations are defined as:

• Own occupation: Your trade, profession or type of work you do for profit or pay. It is not a specific job with any particular employer and is irrespective of location or availability.

• Suited occupation: Any work you could do for profit or pay taking into account your employment history, knowledge, transferable skills, training, education, experience and level of remuneration, irrespective of location or availability.

• Any occupation: Any type of work at all, irrespective of location or the availability of work.