The emergence of updated TPD definitions could see a significant shift in the way the life insurance industry manages claims, with better opportunities to assist claimants to return to work and ramifications in when and how claims are to be assessed.
Under ‘standard’ TPD definitions, generally two limbs must be met for a claimant to qualify for a benefit. Firstly, a claimant must have been absent from work, due to injury or illness, for a period of time – generally 3 or 6 months (the waiting period). Secondly, assessed at the end of the waiting period, the claimant must be unable or unlikely ever to return to relevant work. Recently, however, new policy wordings now have:
- No waiting period, in order to facilitate early intervention and assistance to be rendered; with TPD payments split annually over a periods of years, with remaining increments not payable if the claimant returns to work; and/or
- A requirement that a claimant needs to have undergone all usual and reasonable medical treatment in order to meet the TPD definition.
What issues could arise for claims managers from these updated terms?
In policies which require that all reasonable and usual treatment be undertaken, such treatment could well take a number of years. This could see the date for assessment of TPD being much later than the usual date (typically after six months continuous absence from work). The same may apply in respect of there being no waiting period with an incremental benefit payable – as TPD could be assessed on a successive annual basis.
Accordingly, by the time of an assessment, challenges could emerge such as:
- Length of time out of work and the adverse impact this could have on work prospects;
- ‘Deconditioning’ and loss of confidence of workers after a prolonged recovery;
- Demotivation of workers who may be closer to retirement age; and
- Entrenchment in being unfit as seeking compensation can make it more attractive to ‘stay sick’ than get better.
New TPD definitions allow for early intervention with rehabilitation and vocational assistance, so hopefully insurers will be able to effectively partner with claimants to facilitate the best recovery and prospect of re-entering the workforce in order to mitigate these factors. Insurers may also be able to leverage WorkCover services and interventions and take a more active role in assisting a claimant to return to work. While insurers are still prevented by legislation from funding medical treatment, early assessment could allow expert reports to be obtained recommending treatment which could ultimately assist claimants return to work.
This could see more claimants engaging in a productive work rather than insurers assessing claims after any opportunity to properly address their illnesses or injuries has passed. This could avoid claimants becoming entrenched in the perception of being ‘unfit’ through ineffective management. Given the new TPD benefits will be split, the absence of a lump sum as an incentive could help promote return to work (which should be the goal wherever possible).
In policies requiring a claimant to undergo “reasonable and usual treatment”, an issue may arise as to what exactly constitutes “reasonable and usual treatment” The decision of Newey v First Superannuation Pty Ltd (2009) 261 ALR 143 suggests that a claimant may not be entitled to a TPD benefit if there is treatment that could reasonably be administered which would probably lead to a capacity for work. Conversely decisions such as Telstra Super v Flegeltaub (2000) 2 VR 276; [2000] VSC 107 and [1998] VSC 144 confirm that a claimant with a genuine aversion to a particular type of treatment may not be considered to have unreasonably refused that treatment.
In some cases, before issuing procedural fairness, claims assessors may need to obtain medical evidence as to whether certain treatment can be considered “reasonable and usual” and, if administered, whether such treatment would likely result in a particular claimant actually returning to work.
Written by Jason Stevens, Partner and Madeleine Whiteaker, Solicitor.