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.
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.