The need for timely life insurance claims

The growing number of people who lodge ‘late notified’ claims against disability policies many years after their cover has ceased force upwards pressure on the price of premiums.

Australia’s largest life insurer TAL, through its initial the Financial System Inquiry submission (page 5), is calling for a time limit to be placed on when claims can be made for ‘living benefit’ policies.

TAL Group CEO Jim Minto said: “A big problem facing life insurers is that a claim can be made for a disability benefit many years after the customer has first stopped work and even ceased to have cover.

“This means life insurers are forced to assess ‘total and permanent’ disability (TPD) claims for when someone was once covered and may even currently be working at the time of the late claim.”

A big problem of the current open-ended disability claims arrangement is that the greater the distance between a claimable incident and the time a claim is made, the harder it becomes for both the insurer and the claimant to successfully process the claim.

This is partly because insurers often have to form a view using extremely patchy and inconclusive evidence to determine what a former or current customer’s condition was at a much earlier date.

Mr Minto said: “As well as being difficult to determine due to insufficient evidence, late notified claims could also have potentially harmful implications for life insurers costing models.”

“That’s because these unaccounted for long dated claims make it harder for insurers to adequately calculate their ‘incurred but not received’ reserves and capital needs.”

Consumers end up paying higher premiums for disability cover because insurers are legally required to set aside money for the ‘incurred but not received’ costs expected for such claims and therefore need to recover those extra costs.

Section 54 of the Insurance Contracts Act – which encompasses life insurance as well as general insurance policies – currently prevents the denial of a claim merely because it is notified late.

Far better for both customer and insurer is for the claims to be made as close to the claimable event as possible, not up to over 10 years later.

To help minimise the impact of late notified claims, and maximise the chances of claims being successful, TAL urges customers planning to lodge a claim against their life insurance to get it into the system as early as possible.

Five tips to help consumers achieve a successful claim:

1.    Do get the claim in early because any delay in lodging the claim could delay the outcome.

2.    Do disclose previous conditions and correctly answer questions because incorrect responses may compromise future claims.

3.    Do claim directly or via your adviser if you have one. There is no need to use a lawyer to make claims; it does not change the result which in most cases is to accept and pay a claim.

4.    Do ensure you keep your life cover current. Letting your policy lapse leaves you unprotected. Protecting your ability to earn an income and your life is a necessity not a luxury.

5.    Do update the amount of your cover as your and your family’s needs change. Remember that for many people their income improves over time so income protection insurance coverage amounts should be updated.

Background on life insurance claims can be found on TAL’s A Voice for Life consumer information portal.