No more 'Total', 'Permanent' or 'Disability' in TPD

Total and permanent disability (TPD) cover will be removed from critical illness (CI) policies and replaced by ability-defining headings, the Association of British Insurers (ABI) has confirmed.

The move follows a four-month consultation and a meeting of stakeholders on Friday to cut high claim decline rates related to the TPD benefit by clearly defining what had previously been falsely viewed as a 'catch-all' clause.

A "very clear consensus" on the idea of headings detailing the limits of a person's ability measured by the types of task they can carry out emerged from Friday's meeting, says Nick Kirwan, the ABI's assistant director, health and protection.

He says the ABI is "keen to keep momentum" with another, much narrower, consultation over the next few months to pinpoint the exact new wording.

"It is vital customers understand what their CI policy does and does not cover," Kirwan says. "Losing the ability to never again do the same work is not the same as never being able to work again.

"We will develop the right words to get the headings right and so better manage customer expectations."

The ABI began investigating TPD after research found the claim decline rate was more than two-thirds, mainly because customers failed to meet the clause definition. This was despite TPD accounting for only 3% of all CI claims.

But some advisers are sceptical about the ABI's ability to cater for consumers, arguing there has been little input into the consultation process from intermediaries dealing with customers on a day-to-day basis.

Peter Chadborn, an IFA with CBK Colchester, says: "It is good the ABI is going back to basics and getting to grips with consumers' understanding of TPD terminology.

"However, I would be more encouraged about the process if the collective wealth of knowledge considering the potential solutions included greater representation from those in consumer-facing roles."

Alongside a new set of standardised definitions the ABI says it will commit to educating consumers, financial advisers and sales forces about any changes to TPD.

It plans to distribute slides for advisers detailing standard methods to explain the changes to customers, and open-access education materials will feature on the ABI's website.

Andy Milburn, head of marketing at Munich Re, says: "Previous consultations of this type only consisted of the details which were being changed on product features and the condition wordings we use.

"This is the first time where the aftermath of the announcement of the changes has been given serious consideration. We welcome the fact the communication framework we've been calling for during this consultation has been included in the ABI's announcement".

Going ahead the ABI says it will test proposed definitions with consumers and consult all stakeholders on the new wording, before issuing a new Statement of Best Practice for CI cover which will include the new set of definitions.

Providers will then have a year to adopt the changes, which some advisers have warned fails to create a smooth transition for customers.