Martin Werth’s recent article, Is Protection Really Dying? raised some interesting points and served to show why, as an industry, we sometimes look past the issues that are really important.
One of Martin’s comments related to permanent and total disability: “The future also lies in consumer-driven innovation. Customers must be at the heart of any new proposition and they invariably assume our products confer greater peace of mind than they do. How else could one explain the fact that 55 per cent of critical-illness total permanent disability claims are declined? Legacy thinking is to improve the TPD definition wording, whereas fresh customer-driven thinking is to understand the underlying cause of the problem.”
I believe that, like many in the industry, he has missed the fundamental reason why 55 per cent of TPD claims are not paid. As with all CI and IP plans, it is the definition wording that contractually determines whether a claim is validated or rejected. TPD generally uses four claim definitions – own occupation, suited occupation, activities of daily living and activities of daily work.
My own suspicions have been verified by a number of reinsurers which have confirmed that the majority of declined claims relate to activity-based definitions. My own research has found that in the majority of instances such definitions fail the policyholder because the degree of disability needed to trigger a successful claim is so extreme.
I submit that activity-based definitions are close to worthless and I no longer use them because I believe they are an open invitation for a claim declinature.
Let us consider the extent of the disability required to trigger a successful claim. A typical activities of daily living definition is likely to require an inability to perform two of six tasks. These might include maintaining bowel and bladder function, putting on and taking off clothing, eating and drinking, moving from room to room, moving from bed to chair and washing in a bath or shower.
A passing glance might suggest that these are reasonable tasks which surely reflect the level of disability required to make a valid claim. If only it were so. Consider the conditions which might fail such a determinant. Surely being blind should reasonably result in a successful claim? Well, no, because all of the above tasks can be carried out regardless of sight. How about two broken legs – surely this must satisfy the criteria?
Actually, no – it is not a question of whether you can easily accomplish these tasks, but whether you can accomplish them at all.
Perhaps the activities of daily work provide a friendlier claim scenario. A typical definition might again require two out of six ADWs to be failed.
Walking 200 metres on flat ground, lifting a 1kg object, using a pen, pencil or keyboard, hearing well enough to understand somebody in a quiet room, speaking ability sufficient to be understood and sightsufficient to read 16-point print.
It appears that the disabilities highlighted earlier will still fail to result in a successful claim. Blindness only fails one, two broken legs might fail two but it is debatable. Other serious conditions may equally fall through the wide gaps that such a definition offers.
The question is, how do we as an industry design a product which is marketable, profitable, sustainable and, most important, one that provides the anticipated level of protection to consumers?
Alan Lakey is partner at High-clere Financial Services and director of Adviser Alliance