New ABI Agreement on Total Permanent Disability

For some time now the Association of British Insurers (ABI) has been reviewing the definition of Total Permanent Disability (TPD), which is one of the standard medical conditions used to base a claim with critical illness cover (CIC).

The ABI has now reached an agreement with insurers over a new statement of best practice in order to increase consumer clarity and understanding about this ‘critical illness condition‘.


What is Total Permanent Disability?

A claim can usually be made under the Total Permanent Disability section of a CIC policy if the policyholder suffers a life changing disability.

For office based workers the ‘own occupation’ definition is usually used, which means that the plan would payout for TPD if the policyholder suffers a disability which prevents them from ever working in their own occupation again.

For more manual orientated workers an ‘activities of daily living’ definition is usually used for TDP, which means that the plan would payout if the policyholder suffers a disability that prevents them from performing a number of functional tasks, such as walking and lifting (the tasks may also include sight and hearing).

What are the new plans?

The new agreement between the ABI and insurers will set out a standard definition for TPD with the aim of making it clearer for consumers when a valid critical illness claim for TPD can be made. ‘Descriptive headings’ will be used in policy documents and other literature in order to help with consumer understanding (View: ABI Press Release on TPD).

Drewberry Mortgage Insurance welcomes these developments as consumer understanding of their protection is vital with any type of insurance policy and this may not have been as clear as it should have been in the past. In this respect the figures speak for themselves.

Only about 3 per cent of all critical illness claims are made under the Total Permanent Disability condition but of this 3 per cent as many as 55 per cent of these claims are declined because of a lack of consumer understanding about when they can claim.

This figure of 55 per cent declined claims compares to less than 10 per cent declined claims using other critical illness definitions (payout rates for CIC plans are usually above 90 per cent in total). As a result, a large proportion of critical illness insurance complaints made to the Financial Ombudsman Service (FOS) center around TDP.

The full report setting out the new standard definitions is due out in early 2011 and insurers will amend their policy documents at their usual review periods (which may not be right away).