An inquiry by the Australian Securities and Investments Commission (ASIC) has found that some Australian life insurance companies were declining up to 37 per cent of total and permanent disability claims.

Insurance companies said the situation was different in New Zealand.

Graeme Edwards, of AIA, said 96% of his company’s claims had been accepted so far this year, although more TPD claims were declined than some other types of policies. The rate of decline could run to 10% to 15% at most, he said.

“We do see lower volumes of total and permanent disability (TPD) claims and the decline rate for TPD can be higher as the definition is a high test to meet. Essentially the client will need to prove they neither can, nor ever will be, able to work in their own or any occupation, depending on which they chose for their policy,” Edwards said.

“Monthly disability products will also have an ‘own’ or ‘any’ occupation definition, but total and permanent are not requirements under the wording... With TPD you are not only looking at just the now, but also into the future, and many disabilities can be managed with the right treatment and rehabilitation.”

Sean Butler, of Fidelity Life, said the Australian situation seemed extraordinary.

“I can’t speak for the other providers but Fidelity Life pays around 97% of all claims, with only a small portion of the remaining 3% being for non-disclosure, the rest for not meeting the claim criteria - claiming for something not covered in the policy. My sense is that the other providers would be up in this region as well.”

Former AIA boss David Whyte, said, in Australia, many super funds and platforms would carry death and TPD cover as part of employees’ compulsory super contributions. “It follows that there is a far greater presence of TPD cover in Australia per head of population. Claims incidence here would be lower and so would declinatures.”

Former chief executive of the Financial Services Council Peter Neilson said there were no formal records kept of decline rates.

“One industry executive told me that TPD is almost ‘living death’ - you are alive but totally dependent on the support of others. I would always recommend someone should take out much wider income protection cover than a TPD policy alone as they are only for almost total loss of bodily functions. TPD claims are for very rare but totally devastating events and are unlikely to cover most circumstances when someone is unable to earn an income. “