In a statement released on Wednesday, APRA said while it had put many of the proposed reforms to income protection policies on hold as a result of the COVID-19 pandemic, continuing poor results across the sector had spurred the regulator to take further action.
“APRA wrote to life insurers and friendly societies in December last year to announce a range of measures – including capital charges – to address flaws in IDII product design and pricing that had seen the industry lose around $3.4 billion over the past five years,” APRA said.
“Since the December letter, life insurers and friendly societies have lost a further $1.4 billion through the sale of income protection insurance. Consequently, APRA has concluded that the industry can wait no longer to start seriously addressing concerns that threaten the product’s long-term availability in Australia.”
The regulator said from 1 October, insurance companies would be subject to an additional capital charge “until APRA is assured they have taken adequate and timely steps to address sustainability concerns”.
Further measures aimed at addressing riskier products, including the need to ensure income protection benefits did not exceed the policyholder’s income at the time of claim, cease the sale of agreed value policies, avoid offering policies with more than five-year fixed terms, and ensure effective controls were in place to manage risks associated with longer benefit periods, would come into effect in October 2021, APRA said.
APRA executive board member Geoff Summerhayes said APRA wanted to ensure income protection products, also known as individual disability income insurance (IDII), remained available to those who needed them, and that the viability of the sector was being threatened at present.
“Our assessment is that the pandemic may further exacerbate the problems with this product, so decisive action can no longer be delayed,” Mr Summerhayes said.
“APRA has delivered a framework and financial incentives to fix this complex issue; it’s now up to life companies to rise to the challenge of restoring IDII to a sustainable footing.”
Editor’s note: Following clarification with APRA, the above story has been updated to reflect that an additional capital charge to insurers will apply from 1 October 2020, with product measures coming into force from October 2021.
How the heck is the additional capital charge to insurers supposed to help the industry/ profession?
#FeeForNoService
The destruction of the industry (sorry profession) started with a totally biased flawed report known as Report 413. FSC then thought they were clever, thinking what they were telling ASIC was only going to affect Advisers and help their members increase profits. Then LIF screwed the insurers and the Actuaries because policies are now not being replaced every 3 to 7 years, which is creating havoc with pricing. APRA is now part of the problem and not the solution. How difficult is it to sell an IP policy to someone when you inform the client about what happens at claim time with regards to the benefit they are paying for if their income, for what ever reason is not what it was when they purchased the policy. Zero certainty for the client which means zero confidence resulting in inaction therefore not taking the risk and relying on the Government purse. I’m sorry APRA but you have got it wrong and have ended Advised IP in this Country.
Just what the industry needs. A regulator now designing products.
Hi all, I note a number of comments below around the date of these changes. Please note the media communication sent out by APRA yesterday mentioned 1 October 2020 – I’m attempting to clarify this and will update if necessary. – SK
More BS from people who know nothing about the internal workings of this industry
Please explain your basis for that comment. Are you a BDM ?
ftards slipping this change that quick-no
one will take it out and insurance companies will price themselves out of the market like a dog chasing its tail
What about the advice documentation I have prepared, clients have agreed to and is yet to be submitted. (eg.these contracts have a 3 year look back).
Surely we need a greater time frame than 1 day.
What about my time costs and investment into the outrageously lengthy advice process.
someone tell this is a joke.
I feel your pain, but George they (regulators, Insurers) don’t care about you. I just had a meeting with a bdm who has been indoctrinated believing their company is only they for adviser. I’ve heard that before from other insurers who now operate in group and direct markets. It seems to me insurers use us to build a base and then forget who helped them do it. They don’t care…
@George, never fear, this article was not fact checked correctly and is actually slated for 2021.
Carelessly written article. These changes are to take effect 1st October 2021 !!! For those that are in a spin, calm down. Nothing new here except a concrete start date
Sadly they got what they deserved. APRA etc stuffed the industry and now consumers will suffer. Many republican so specialist left industry. Leave it for the inexperienced now to advise consumers. All that matters is compliance afterall
Note the compliance date is 1 October 2021 and not 2020
its 2021
IP has always been an issue at claim time..onerous process to say the least
This article says 1 October 2020 which is tomorrow???
isn’t that what they’ve already announced?
This is bullshit ! Complete over-reaction
IP is not profitable at the moment for 2 reasons
1 It has been UNDER-PRICED for 10 years.. CEOs have been driven by market share, shareholder value and management bonuses. And BDMs were earning more than many advisers
2 LIF has stopped the constant inflow of fresh fully underwritten NEW RISK.
When the smoke clears, and the dancing stops, who in their right mind would buy the limited protection which APRA proposes
Any adviser who agrees to client pressure to replace existing ( albeit expensive ) IP with the proposed cheap and nasty cardboard replica IP proposed by APRA, SHOULD BE SHOT !
1 October 2021. Poorly written article!
[i]2 LIF has stopped the constant inflow of fresh fully underwritten NEW RISK.[/i][i][/i]
Any business model that relies on new business to be profitable or be sustainable is a ponzi scheme by definition. See Amway, Bernie Madoff etc.
[i]Any adviser who agrees to client pressure to replace existing ( albeit expensive ) IP with the proposed cheap and nasty cardboard replica IP proposed by APRA, SHOULD BE SHOT !
[/i][i][/i]
Disability Income is for temporary disability. A disability that last for 10, 20 years is kind of permanent, don’t you think? Long benefit periods don’t make sense for a temporary disability product.
You sound like an investment adviser who plays occasionally in risk ! In 30 years I have had three claims that went over 25 years on a Partial basis. And yes, superficially a Number 1 fund is a type of Ponzi, but with individual risk assessment, unlike group. And actuaries are supposed to cost premiums so that when the 25 year old joining today eventually claims around age 50+, the funds are there to pay claims.
Insurers are no longer long term planners. To keep shareholder value ( and new business bonuses for all those time wasting BDMs) insurers are currently costing IP on the belief the client will not be on board in 7 years time, so its money for old rope. Insurers smile when the business moves without having a claim, but they will not say that to ASIC.
Old risky knows his stuff^
Wow, did not foresee the earlier start date.
a load of BS
pathetic that long standing experienced insurance companies now run away from the very policy contracts they designed, promoted and sold, And as for level premiums – what a joke
Better immediately wipe LIF and immediately revert to pre-LIF commission rates to ensure that there will be any volume of new business implemented at all in order to assist in offsetting the significantly increasing claims expenses and the already skyrocketing premiums.
If new business slows to almost nothing compared with previous years, more and more existing policyholders will cancel policies due to affordability issues and the whole sector will implode.
There must be an incentive for advisers to be able to provide advice and place quality business on behalf of their clients. Without this process at least covering costs or being profitable, the distribution of insurance companies product comes to a standstill. You must have business coming in the front door in order to fund the business of claims and cancellations.
The Group Insurance component of insurance has been a disaster with automatic acceptance terms and the ability of consumers to select against the insurer with no assessment required.
This component of business has contributed a massive and negative impact.
“APRA executive board member Geoff Summerhayes said APRA wanted to ensure income protection products, also known as individual disability income insurance (IDII), remained available to those who needed them” hahaha …… what else can you do!
What happens when you lumber LIF legislation on the life brokers, making it virtually impossible for brokers to afford to onboard new business. APRA is getting what it legislated – total destruction of an entire industry. APRA should be shut down.
Who cares insurance companies losing money big deal they have robbed consumers for years