APRA said it had issued a letter to life insurers informing them of an “updated position” on the IDII changes, which meant that its policy term contract measure would now not come into effect until 1 October 2022.
The measure, part of a raft of restrictions to the product design of income protection policies following dramatic losses for insurers in the IDII product segment, would see a five-year maximum policy term imposed on new income protection products.
“APRA, along with ASIC, has been actively engaging with the FSC and other industry stakeholders on the implementation of the policy contract term measure,” the regulator said.
“It has become clear that the industry is unlikely to be able to develop viable solutions for implementing the measure by APRA’s previously communicated deadline of 1 October 2021. APRA is aware that life companies have considered various options, but to date have not settled on solutions that satisfy both the legal and operational constraints and without unintended adverse consequences for consumers.”
APRA said it acknowledged “the challenges associated with implementing the policy contract term measure” but viewed it as “an important mechanism to manage the risks associated with long contract terms”.
“Without the policy contract term measure, it is unlikely there will be a change to the current practice that effectively locks in terms and conditions for extended periods of time, leaving premium changes as the primary (or only) lever to deal with the impact of external changes on IDII sustainability,” the regulator said.
With an extended deadline now in place, APRA said it expected insurers to “intensify their efforts to explore and develop workable solutions to meet the intention of APRA’s policy contract term measure and to proactively keep APRA informed of progress”.
“It is important to note that all of APRA’s other IDII product measures will still take effect on 1 October 2021,” APRA said.
My understanding is the challenge is around what I would describe as the ‘5 Year Rule’ – where every 5th policy anniversary, an IP contract would be reunderwritten for occupation and income, but not medically. The challenge comes about from who will do this work and how will it be paid for? If the adviser does it, then if the client’s occupation or income has changed (and their health hasn’t) to meet your best interest duty, you would likely have to go back to the market to see if there was a better option for the client. If you’re rewriting the IP – you could probably get a better deal for the lump sum business too (given how some insurers discount new business and load the back end). So now the insurers effectively have to build a business with a five year lifespan but a potential 45 year tail (if a 20 year old goes on claim). I’m not sure they can price that sustainably and still have an IDII market. Other than the ‘5 year rule’ removing all the bells and whistles from the IP policy (other than indexation and increasing claims) makes sense, IMHO.
Is this a walk back by APRA?. What happened to the URGENCY of 2020? Has the chief perpetrator of this IP rubbish taken his ” shock and awe” tactics and finally departed APRA to pursue more bucolic pursuits.
In fact: the FSC has been telling APRA they cannot meet [u]one [/u] of the requirements APRA suggested. They have been lobbying APRA to remove it, saying it’s not allowed by law etc. APRA are having none of it and asked the industry to try harder.
Despite the cynicism of this forum, APRA are trying to force the life companies to sell products that make commercial sense. The current product is not commercially viable for anyone.
Here is my solution APRA. Stop new business discounts, increase premiums on non-underwritten cover, and increase the insurance pool by incentivising advisers to write new business.
Hmm I’m worried you are inserting too much logic to this discussion.
I want you to represent me. You nailed it.
…and don’t forget also cutting the miles of red tape we’re wading through now to simply get a new policy written.
You speak a language that the regulators/government don’t understand- common sense!
Exactly. I used to write 150-200,000 or new risk business per year. Now none. The future will certainly be a struggle but they wanted us out n so I heeded that
Sorry anonymous, that won’t fix the IP problem.