A lot of advisers do not like Total and Permanent Disablement Cover (sometimes called Lump Sum Disablement). Academics and risk specialists, backed up by a lot of advisers more used to the Australian environment, think TPD is a product that should be sold more. A quick look at the industry data tells us a couple of things:
- not enough information is shared about TPD claims to enable a reasonable assessment to be made
- the advisers critical of TPD are therefore probably right to shun it
An adviser asked us recently to tell them how many TPD claims are paid each year. Unfortunately that data isn't shared in the annual public data offered by the FSC. What is shared is a category that includes both "Claims and Expiries." For rate-for-age term the proportion of "expiries" will be low, for TPD with a typical expiry age of 65 it will be high, whereas rate-for-age life does not expire.
Looking at the quarterly public data we can see the amount of benefit payments. At just over $3 million for the most recent quarter you can begin to estimate the claims rates. Link.
Assuming something like the smallest plausible sum insured, $50k per policy (to be as generous as possible on claim rates) you get to about 60 claims a quarter, say 240 a year. With just over 66,000 benefits in-force at the end of Q3 2015 (link) the rate of claims as a proportion of all in-force (a crude measure, I know) is about .36%. For life cover the equivalent numbers are 1,596 "Claims and expiries" in the quarter, giving a rough annual rate of 6,384, with 1.094 million in-force contracts. A much higher rough rate of claim.
The solution for insurers who would like to sell more TPD is therefore obvious. Convincing advisers and consumers that they can rely on the circumstances in which they will out depends on sharing a lot more claims data. Do that and you can probably sell a lot more of the stuff.