Advisers are likely to see continuing increases to retail life insurance premiums and significant cuts to the benefits clients have grown accustomed to as part of APRA’s drastic shake-up of income protection products slated to come into effect next year.
Addressing the recent AIOFP virtual conference, MetLife head of advice strategy Jeffrey Scott said changes introduced earlier this year to restrict the sale of agreed value policies were just the beginning of a significant overhaul of the income protection insurance sector that Mr Scott likened to “using a sledgehammer to crack open a walnut”.
“With regards to the proposals to be implemented on 1 January [2021], life companies are now going to be required to review their premiums every 18 months based on industry claims statistics,” Mr Scott said.
“We have seen volatility with most IP policies in the past three to five years, so expect that to continue going forward. These first proposals that APRA had were interesting, but the next eight that are proposed to come in on 1 July 2021 are the ones that scare me the most.”
Mr Scott said the further rules proposed to come into effect from 1 July 2021 would involve “stripping away” significant IP benefits including assessing an insured person’s income over the previous 36 months before their claim, and including the full extent of an insured person’s income in any assessment.
“Under these proposals, the maximum benefit you can receive is capped at 100 per cent of your pre-disability income – that includes your sick leave, your rental income, that will all be included as offsets to your income,” he said.
“Most of the good income protection policies don’t offset sick leave or long service leave, whereas these policies will automatically do this. And if you go on claim for more than six months, the maximum benefit will automatically reduce to 75 per cent.
“So we have these situations where for new policies issued after 1 July 2021, it will strip away benefits we’ve become accustomed to since these policies were introduced back in 1965.”
Other policy benefits proposed to be removed by the new APRA rules included own-occupation rather than any-occupation definitions, and additional trauma benefits paid out on IP policies, Mr Scott said.
He urged risk advisers to take action through their industry bodies and make direct submissions to the regulator pointing to the impact of such changes to clients’ financial stability.
“The first thing you can do is talk to your industry body and encourage them to lobby APRA, and the second thing is talk to APRA yourself – provide a submission, make sure they understand what the impacts are on your clients, that when they need the cover the most, they are going to have that cover,” Mr Scott said.
“Talk to your local member, because if clients can’t get adequate income protection insurance, they become a drain on society. Make sure you are active in this, otherwise the new policies you can offer to a client will have far fewer benefits in there to help the clients out.”
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