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ABI’s decision to keep TPD banner is a missed opportunity

I have heard that total permanent disability in critical-illness policies is under review. What does this term mean and what difference will it make to me as a policyholder?

Total permanent disability describes a situation where, through injury or illness, a person is left unable to do their own or any occupation they are suited to through their training, education or experience.

TPD is an inappropriate phrase because you do not have to be totally disabled to not be able to do your job. There is a clear mismatch, which means there is a problem with the number of claims that get turned down.

Up to 55 per cent of all TPD claims are refused and while that is a terrible figure, it is not the insurance companies that are being harsh.

I know of people who have claimed for a broken leg. While I may laugh at that, in reality, if it says in the policy that you can not perform your own occupation and the adviser has not explained it fully or the client has not understood it, you can see why the claim goes in.

Even though the claim is spurious, it will show up as a statistic for declined claims, to the detriment of everyone.

The Association Of British Insurers has decided to keep the name TPD, which is a missed opportunity. To term it permanent disability would be better in that people would find it easier to understand.

But it is not just the name. The definition also needs to be reformed. One of the biggest reasons for inaction in any area of life is if things look too complex. TPD is nothing if not complex. There are some policies, such as that from PruProtect, which cover up to 160 different conditions, some of which are the same medical condition but with a different level of severity.

We need to remove complexity without removing the good parts of these plans. We are still waiting to hear the details of how TPD will be defined but it is important that it is addressed in a sympathetic, sensible and non-confusing way. If the ABI comes up with some simplified proposals, it will help consumers’ understanding of the product.

And it is not just consumers, there must be a reasonable percentage of advisers who are put off by the complexity and who will not sell it. With the retail distribution review looming, simplicity is more important than ever. If we say to people, come to us, pay a fee and here is some complex stuff, customers are much less likely to engage with us.

Alan Lakey is a partner at Highclere Financial Services

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. If you’re waiting for a solution from the ABI, don’t hold your breath.

    It was the ABI who initially quoted the misleading statistics about TPD claims. They then woke up and realised:
    – TPD is an important part of critical illness
    – my customers value TPD
    – the industry wants to keep it

    The ABI should be taking responsibility and apologising to the industry. Fat chance of that!

  2. The decision by the ABI not to change the name of TPD (Total Permanent Disability) is absolutely the right one to make.

    Yes we have had problems with declined claims, but these were caused by lack of understanding of the definitions. And perhaps the historical marketing stance which leads people to believe that TPD was a “catch all” and that “you may as well claim”.

    The name was not the problem.

    The ABI have addressed the clarity of the definitions and are moving forward with education initiatives to build upon that. This is what is important.

    Leaving the name as is avoids confusion between the existing and extensive back book, and new business going forward under a new name. Now both old and new clients can benefit from the emphasis on the definitions and the education rather than the window dressing of a name change.

  3. Roger, the ‘confusion’ argument would carry greater weight were it not for the reality that most conditions undergo definition adjustments and as these are not restrospective it means there is always a mismatch between yesterday and today.

    Would you not agree that the word ‘total’ is quite misleading. Of itself it suggests that only the comatose or quadraplegic might reasonably claim.

    Clarity in financial services, now there’s a thought.

  4. “TPD is an inappropriate phrase because you do not have to be totally disabled to not be able to do your job”
    – This is looking at it the wrong way round – if you can’t do your job then you ARE totally disabled (under most definitions). Totally is in there to differentiate from partial disablement for example if someone develops a hearing problem they may not be able to use the phone but they can still use a computer so they are not totally disabled.

    “To term it permanent disability would be better in that people would find it easier to understand.” Well the P in TPD stands for permanent! And as your broken leg example shows, people already don’t understand the permanent part of the title.

    “TPD is nothing if not complex. There are some policies, such as that from PruProtect, which cover up to 160 different conditions, some of which are the same medical condition but with a different level of severity” Pruprotect has a complex product yes, but this is 160 serious illnesses, not 106 definitions of TPD.

    I actually think the concept of having something so seriously wrong with you that you cannot realistically ever be expected to work again is quite simple. I think IFAs’ misunderstanding of terminology (as it looks like in this article) is a lot to blame, as is regulation which means tight definitions rule over common sense ones – they have to be legally watertight. Again that idea is a simple one but in practice it is fraught with problems.

    Finally if clients are looking for a product which protects them if they can’t work then they should be sold IP, not CI/TPD, in my experience this is what causes the problem at claims stage.

    If anyone can come up with an alternative name for a benefit payable if someone becomes unable to work for the rest of their life then I’m sure the insurance industry would be tremendously grateful!!

  5. How about “Never work again” cover, which can be split “Own Job” and “Any Job”. We need titles that are simple and clear to the public; that is more important than debating amongst insurers what is “total” and what does “permanent” mean.

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