The Australian Securities and Investments Commission (ASIC) has conducted a review which found “significant industry-wide problems” with total and permanent disability (TPD) insurance.

The corporate regulator considered that many consumers can’t rely on this cover when they need it most.

Most distressingly, the review found that nearly 500,000 Australians in casual roles or high-risk occupations are only covered by a very narrow TPD policy definition that would only provide a payout in the most catastrophic of circumstances, such as if they were unable to perform several “activities of daily living”.

Activities of daily living, also known as ADL cover, includes actions an individual undertakes on a daily basis, such as feeding, dressing or washing.

Under ADL cover, ASIC found that 60 per cent of such claims are declined, with this number five times higher than the average declined claim rate for all other TPD claims, which sits at 12 per cent.

Poor claims handling processes have also contributed to consumers withdrawing their claims.

One in eight claims lodged with insurers does not ever proceed to a decision.

ASIC also slammed the lack of key claims data held by insurers, which would otherwise “help them effectively manage the risk of consumer harm”.

Commenting on the findings, ASIC commissioner Sean Hughes said it was “alarming” that three TPD claims a day are assessed under the restrictive “activities of daily living” definition, which has a concerningly high decline rate.

“People that hold this type of automatic cover through superannuation are typically paying the same premium – for what is essentially junk insurance – as people who can access less restrictive definitions under general TPD cover.

“We also find it inexcusable that insurers did not use, or in some cases even collect, data to enable them to identify the very poor consumer outcomes that are being produced because of these restrictive definitions,” he continued.

He’s put the onus back on the industry, noting that superannuation trustees “have a crucial role to play in the delivery of life insurance to their members”.

“We expect trustees to act in their members’ best interests by providing access to affordable insurance products that are suitably designed for their members while also safeguarding superannuation balances from inappropriate erosion.”

The corporate regulator said it expects the industry to make “prompt changes to ensure this cover provides real value”.

A memorandum of understanding has recently been signed, which will see Australia’s major life insurance players working together to improve professionalism and community confidence in the industry. 

AMP Life was recently called out for its “egregious” delays in paying out life insurance.