FPA and AFA welcome suspension of APRA’s insurance policy contract term measure

The Financial Planning Association of Australia (FPA) and the Association of Financial Advisers (AFA) have welcomed news by APRA that the proposed insurance policy contract term measure for individual disability income insurance (IDII) will be suspended for at least two years.

FPA CEO Sarah Abood and AFA CEO Phil Anderson said the decision by the prudential regulator is a win for consumers as it will protect them from “unintended negative consequences”.

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“The measure was part of a planned package focused on improving the sustainability of the IDII market. The arrangement would have seen new income insurance contracts from October 2022 capped at a maximum term of five years, rather than being guaranteed renewable – typically until the retirement age of the policyholder – as is presently the case,” Ms Abood and Mr Anderson said in a joint statement.

“While policyholders would have had the option to re-apply for cover, the risk is that new contract terms and conditions may have changed, and policyholders would be underwritten again based on possibly changed income, occupation and pastimes.”

Had the measure been implemented, Ms Abood and Mr Anderson argued that it could have resulted in a number of issues for consumers, including missing communications from their insurer and uncertainty for those who may be on a claim when the five-year term expires.

“A number of other IDII measures have already been implemented that should have a positive impact on viability for these products, including changes to ensure benefits are now based on income at time of claim. We believe more time is needed to assess the impact of these changes on the overall sustainability of the market,” the statement continues.

“We look forward to continuing to engage with regulators and insurers to ensure that consumers have access to high quality and reasonably priced insurance that protects them and their families in their time of need.”