“After a thorough investigation of all the evidence supplied, we’re sorry to inform you that the member’s Total & Permanent Disablement [TPD] claim has been declined,” Commonwealth Bank’s Colonial First State told policy holder Amber Lomax on May 18, 2018.
It was a kick in the guts. The single mother of two boys, 12 and 15, survives on Centrelink and food banks after a workplace injury left her unable to work. Now she is doomed to a diet of strong nerve pain medication and antidepressants and the knowledge that no surgery can fix her.
Lomax took out a life insurance policy with CommInsure through her Colonial First State super fund in 2014 when she was working as a factory hand at a Victorian filtration manufacturer. Crucially, her employer registered her as a casual worker despite working 38 hours a week.
Her injury occurred as she carried, dropped and then tried to pick up, a 60-kilogram roll of polypropene with a colleague. She damaged her shoulder, her arms and wrists. For a variety of reasons her muscles atrophied and her life is now spent managing constant nagging chronic pain.
“Some days my brain is so foggy that it is hard to function. The depression and anxiety and chronic pain, it just wears you down,” she said.
It has taken a toll on her children. “My youngest knows we aren’t financially well off and so he hides excursion forms for school, which is something no child should have to do.”
Lomax lodged a claim in September 2017. Nine months later her claim was knocked back. She was told that CommInsure and the Colonial First State Trustee had determined she didn’t satisfy the definition of TPD under the policy.
This was despite medical certificates determining she was unlikely to ever work again. In other words, she was totally and permanently disabled under the standard TPD definition.
But therein lies the rub.
Casuals treated more harshly
Because Lomax was classified as a casual worker her policy didn’t satisfy the standard TPD definition. What she didn’t know – and thousands of other Australians don’t know – is that some insurers have clauses in life insurance policies that assess casuals for TPD more harshly than permanent workers.
Some experts believe these types of clauses relegate the policies to junk insurance because it is almost impossible to meet the hurdles, despite some claimants legitimately being unable to work. The more claims rejected the more profit for the insurer, which in this case was owned by Commonwealth Bank until last year.
The clause is known as Activities for Daily Living definition (ADL), which is also referred to as the loss of sight/limbs clause.
The ADL definition varies across funds but people seeking to prove total and permanent disability under the definition have to show they meet two or three out of five criteria.
In the case of Lomax’s policy, it says: “If you are a casual … you may be entitled to a TPD benefit if the insurer is satisfied that as a result of illness or injury, you: have suffered total and irrecoverable loss of the use of two limbs, or sight of both eyes, or sight of one eye and the loss of the use of one whole hand or foot or will never be able to perform at least two of the following activities of daily living without assistance of another person: dressing, bathing, toileting, moving freely or eating.”
Lomax can’t work. If she was permanent she would have satisfied the standard definition but because her employer classified her as casual she had to meet more draconian requirements that most TPD cases couldn’t ever meet.
Lomax says if she had known that in order to be eligible for insurance and not to be assessed under an ADL definition she wouldn’t have joined the fund and paid the premiums.
Horror show expected
CBA said in a statement that in May 2018 the trustee (CFSIL) updated its insurance terms to provide for an hours-based test for assessing TPD claims to consider different employment definitions in light of changing workforce trends.
It said the change followed a benchmarking review in 2017 that resulted in the trustee approving policy changes for Colonial First State FirstChoice Employer Super, Colonial First State FirstChoice Personal Super and Colonial First State FirstChoice Wholesale Personal Super.
This change meant the full TPD definition – rather than the more draconian ADL definition – applies to all members who work at least 15 hours a week over a three month period, six months before the accident.
CBA was unable to say how many claims under the pre-May 2018 ADL definition change that Colonial had paid out.
About 12 million Australians are funnelled into life insurance through their superannuation, paying an estimated $9 billion a year in premiums.
With a growing trend of casualisation of the Australian workforce, the inclusion of ADLs in policies for causal workers has been described by Lomax’s lawyer at Maurice Blackburn, Kim Shaw, as insidious.
The Hayne royal commission resumes on Monday with a series of insurance companies to be scrutinised over the course of the next two weeks. It is expected to be a horror show, particularly in the way sick and dying people have been treated with delayed and denied claims.
Prominent life insurance lawyer John Berrill from Berrill Watson said “hidden nasties” such as ADLs buried in life insurance policies needed to be addressed. He questioned whether they are legal under the Superannuation Insurance Supervision (SIS) Act under MySuper and whether trustees are acting in their members’ best interests.
He said many casual fund members were paying premiums at the same cost as a permanent worker but were being treated differently, which was grossly unfair.
Need for reform
ASIC released a report on Friday that found some disturbing practices such as trustees automatically defaulting members as “smokers” or “blue collar workers” when transferring a member from an employer plan to a personal plan within the same super fund. The upshot was members who don’t smoke or are white collar workers were gouged.
The report also noted a wide variety of TPD definitions, which it said, might not be illegal but posed significant challenges for members in understanding and comparing insurance cover.
Under section 52 of the SIS Act trustees must act in the best interests of their members.
Not all funds and their trustees have been taking their members for a ride when it comes to default life insurance. For instance, the CBUS policy includes an ADL definition called Everyday Work Activities, which only applies if the member is unemployed for more than 12 months when they become disabled. This is a contrast with the application in Lomax’s case, which covers all casuals even if actively working at the date of disablement.
The reality is life insurance is a mess. The law has been deficient and codes of conduct are voluntary and therefore lack bite and accountability. They also don’t go far enough.
It means there is quite a list of things to tackle – and that’s just life insurance – most notably the delays in claim payouts, a lack of standard definitions of TPD, trauma, heart attacks and the like, too many complexities and a lack of transparency.
When this is coupled with the antiquated systems that continue to plague the sector, and hefty commissions paid by advisers to flog the products, it paints a picture of an industry in dire need of reform.
With only two weeks to cover not just life but also general insurance, the royal commission will be racing against the clock. But with so many reviews taking place and the sector on high alert, let’s hope the right recommendations are made to sort out the mess.