Life insurers have been told by the corporate regulator to fix shoddily designed total and permanent disability (TPD) insurance products and deal with unsatisfactory claims practices or face having changes imposed on them.

An Australian Securities and Investments Commission (ASIC) report says life insurers have used restrictive definitions to deny claims to up to 500,000 people who worked in high-risk and casual occupations.

Some 60% of claims under the narrow “activities of daily living” definition of cover have been declined by life insurers – more than five times the average of declinations for all other TPD claims. ASIC says the definition means insureds can only claim if they suffer injuries rendering them unable to dress, wash or feed themselves.

The report singles out AMP, Asteron and Westpac for declined claims rates that were higher than expected, with declined rates for Asteron almost double the number the regulator predicted. Westpac declined 28% of claims, Asteron 29% and MLC Life 18%.

More than 10% of TPD claims were withdrawn as a result of challenging claims processes, including multiple requests for further medical assessments, unwarranted accusations of fraud and excessive delays.

ASIC accuses life insurers of having limited insight into why claims are withdrawn, indicating “poor oversight”.

The Financial Rights Legal Centre (FRLC) says the report confirms its own experience with TPD insurance, and has called on the Federal Government to apply the unfair contracts regime to TPD and other group insurance products.

Choice-linked Super Consumers Australia says the report is conclusive evidence that life insurers are creating junk insurance policies for super.

“Junk insurance is a problem highlighted by both the Hayne royal commission and the Productivity Commission,” Director Xavier O’Halloran said today. “It’s time for Parliament to take urgent action to ensure that people have a quality safety net when they can’t work due to disability.”