New rules from the Australian Prudential Regulation Authority on income protection insurance will be introduced from 1 October in response to over $3 billion in losses suffered by the industry in the past five years.
Among the changes set to be introduced is a reduction to the maximum amount of pre-disability annual income that can be claimed, which will drop from 75 per cent to 70 per cent. A cap of 90 per cent of annual income will apply for the first six months.
While individuals may currently be able to make an extended claim indefinitely under an existing policy when they are not able to return to their previous occupation, this is no longer the case.
“This means after two years, a policy will switch to any occupation that a customer can do based on education, training or experience as opposed to the role they were in at the time of claim,” said Dale Coombes, the head of life insurance sales and service at comparison site Compare Club.
The time frame over which pre-disability income is measured will also be reduced.
“Anyone who makes a claim on a policy taken out after 1 October will only be able to use the 12 months leading up to the claim to show their pre-disability income and will need to provide a reason for insurers to look past 12 months of income in extenuating circumstances, such as if they had recently been on maternity leave,” Mr Coombes said.
“While this is a positive change for the industry, it does mean anyone who takes out IP after 1 October is potentially paying a similar price for less coverage.”
The pricing should decrease, as if the quality of the product – same occupation no longer applies – then the pricing that currently exists, will need to change – downwards – otherwise the client is being ripped off.
Rather the downgrading the product, wouldn’t it have been far more sensible to properly price the product, so that everyone pays the correct price for their product selection. downgrading the product means that soem clients will be paying for a product that will not meet their required needs becuase of these changes. So why then would they bother taking it out.
Positive change…???
Positive for customers? Doesnt look like it from a benefits perspective.
Positive for Financial Advisers? Don’t think ‘we’re’ much involved in this aspect of FP anymore…
Positive for Insurers…doubt this…expect sales / new business to be even further down than before…
Not sure who its positive for? Maybe APRA? but then the horse has bolted out the door some time ago…
So, how is the best interest element an adviser needs to uphold, upheld….Avoid the risk….no IP under these terms and not willing to stick my neck out for this level of uncertainty to impose on a client. Who gets the blame here…APRA are fools. How was the IP policies looked after when the industry was profitable across the board regardless of insurer before the “changes”. How to destroy an industry…APRA style…take a profitable industry make changes and watch as the next five years results in disaster only to undermine the consumer…..where is the Centrelink office again or have these fools forgotten the dummy taxpayer. Best interet my foot.
So APRA has a new role. Insurance underwriter advocacy.
Underwriters need protection from themselves.
Consumers are the problem
Is that the message?
How do you conclude the message is consumers are the problem??
But, yes, underwriters need protection from themselves.
A regulator now dictating what is a product and doing the underwriting. Surely, their role should be to make sure that the insurers meet the contracted terms and leave business decisions to business.