The Association of British Insurers’ updated statement of best practice for critical-illness cover marks the end of the long-running industry debate over how to resolve issues with total and permanent disability.
The TPD clause within CI policies accounts for 3 per cent of claims but of those, around half are declined owing to a lack of clarity among consumers about what is covered.
The issue of how to improve the clarity of TPD was first raised as early as 2004. The following years saw the ABI call for the TPD clause to be scrapped, then rebranded, before settling on improving the definitions.
The updated statement of best practice, published last week, introduces a set of model definitions for TPD in a bid to better explain what is and is not covered and help consumers compare policies.
Insurers can choose to adopt one or more of the following standard TPD definition headings:
- Unable to do your own occupation ever again
- Unable to do a suited occupation ever again
- Unable to do any occupation at all ever again
- Unable to do three specified work tasks ever again
- Unable to look after yourself ever again.
ABI assistant director of health and protection Nick Kirwan says the trade body’s work has attracted interest from other countries as the project marks the first standard TPD definitions in the world.
He says: “The new, more descriptive headings and standard definitions will help make the scope of TPD cover much clearer. The work on developing standard definitions for TPD will help ensure that critical-illness policies are clear and pay out in line with customer expectations.”
But Highclere Financial Services partner Alan Lakey says: “I do not think the clarity of the TPD definitions is the issue. The problem is that a successful TPD claim is assessed on whether the individual can carry out several task-based activities, which in my view is overly harsh.”
Master Adviser senior partner Roy McLoughlin says many consumers opted for TPD when income protection would have been more suitable.
He says: “If a large number of customers had taken out the correct policy, that is, income protection, there would not have been a problem with TPD in the first place.”
The statement of best practice also includes standard wording for the pre-existing conditions exclusion for children’s critical-illness cover and improvements to terminal-illness definitions.
ABI members will have to implement the new wordings as soon as is practical and no later than the end of 2012.