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.”