Senator Jane Hume has revealed the government is “open” to the idea of TPD insurers paying for claimants’ treatment rather than large lumps sums, which she suggested could not only help keep the industry sustainable but also benefit consumers.

Speaking with Financial Services Council CEO Sally Loane on day 1 of the FSC’s Virtual Life Insurance Summit 2020 webinar, Hume said that mental health total permanent disability claims – which have doubled in recent years – is one of the industry’s “looming crises”.

A possible solution, she offered, is to change the way TPD claims are paid.

“One of the things that I know life insurers have been talking about is… rather than having TPD claims for mental health as lump sums maybe there’s a way that life insurers could pay out for treatment rather than as a lump sum,” Hume said.

The assistant minister for superannuation, financial services and financial technology said handing someone with significant mental health problems a large lump sum could actually translate into other problems such as gambling.

“It’s a little bit like handing the car keys to a 16-year old,” she added. “That’s not going to cure the problem, it could potentially make it far worse, so perhaps a better way to do it would be to pay for treatment.”

Both the Treasurer and the health minister were open to the idea of changing the way TPD is paid, Hume revealed.

The assistant minister went on to say the industry should also be looking at ways to make the “continuum of insurance” – from health insurance through to life insurance and trauma – more frictionless for consumers. “That’s not well sequenced at the moment,” she continued.

Prompted by Loane on the importance of the role of group insurance within superannuation, Hume agreed but with the caveat that consumers need to be more aware of what they’re getting.

“I don’t like the idea of Australians paying for things they don’t necessarily understand,” she said.

Door open to reform

In a subsequent session on the webcast, insurance heads broke down the minister’s comments with several addressing the option of paying for treatment instead of doling out lump sums.

AIA chief executive Damien Mu noted that there would need to be a sharp legislative turn for this kind of change to take effect.

“That’s about having a policy change [regarding] the current restriction around the Life Insurance Act which prevents life insurers from early prevention payments around rehabilitation,” Mu said. “If we can get that moving that’s the most important policy change we can make right now.”

Lump sum payments and treatment payments needn’t be mutually exclusive, Mu reckons. “There’s a place for lump sum payments as well,” he said.

MLC head life insurance officer, Sean McCormack, said he was heartened to hear that Hume was “congruent to the challenges the industry faces”.

“It feels as though the door to legislative reform may be slightly more open than it has been in the past,” McCormack added.

Industry voices

The FSC’s Life Insurance Summit comes directly after representatives from MLC Life Insurance, TAL, AIA and Zurich, as well as the FPA and the AFA, released a whitepaper as part of the Choice and Access to Life Insurance (CALI) campaign stating that regulatory disruption is making it harder for Australians to obtain life insurance.

“There has been significant regulatory disruption to the life insurance landscape, which has resulted in access to life insurance through banks, direct from insurers, through superannuation funds and financial advisers becoming more limited,” an accompanying press release stated.

In a precursor to the reopening of the life insurance commissions debate, which is sure to reopen in advance of next year’s review of the Life Insurance Framework reforms, the group highlighted the burgeoning advice gap in insurance.

“Most ordinary Australians cannot afford to pay an upfront fee for financial advice, and, if trends continue, may not be able to access a financial adviser to help them identify their life insurance needs,” the release stated.

One comment on “Treatment in lieu of lump sums for mental health claims: Hume”
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    To say consumers are more likely to spend a lump sum benefit could actually translate into other problems such as gambling is absurd and a baseless comment to make!

    Client normally use this money to purchase a home or clear a home loan, so they can have a roof over their head, pay for medical treatments and home modifications if needed.

    To talk about watering down contracts for TPD does not solve the issue at hand, government got rid of zombie insurance contracts group insurance, Insurance companies have been losing money in the investment market due to covid, insurance companies can no longer sell insurance directly through hard sales tactics and LIF was the last nail in the coffin.

    Simple solution is to stop risk advice being forced to be delivered through expensive SOA’s. If advisers could deliver risk advice without SOA or through a short standard disclosure document provided by the regulator, this would help the under insurance problem and a growing problem for the government through disability support pensions and NDIS etc

    AFA’s Mr Kewin said the research pointed to the failure of the LIF on several of its stated policy aims, which were around improving the quality of life insurance products and advice for consumers.“LIF was supposed to produce lower premiums, but on average premiums have gone up, it was supposed to reduce lapse rates and lapse rates haven’t come down, and the quality of the product being delivered to the consumer hasn’t improved because there are so many challenges in the industry at the moment,” he said.

    I personally have seen clients premiums increases up from 10-40% over a 2-3 year period premiums are not going up by CPI and we are seeing more and more out of step premium increases this is out of the advisers control. Insurance companies are increase premiums on existing policies and at the same time discounting new business on the same insurance.

    The problem is simple they need more new business, Australia has a huge under-insurance problem, so the business is there… the real disconnect is how good quality risk protection is being forced to be delivered.

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