Two financial services associations have welcomed the Australian Prudential Regulation Authority’s (APRA) announcement suspending the proposed insurance policy contract term measure for individual disability income insurance (IDII) for at least two years.
The Financial Planning Association of Australia (FPA) and the Association of Financial Advisers (AFA) had been working in partnership to advocate for this outcome with senior leadership at the Australian Securities and Investments Commission (ASIC) and APRA.
APRA’s decision was a great result for consumers and protected them from a number of unintended negative consequences, they said.
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 was presently the case.
While policyholders would have had the option to re-apply for cover, the risk was that new contract terms and conditions may have changed, and policyholders would be underwritten again based on possibly changed income, occupation and pastimes, according to the associations.
The measure would have had a number of unintended negative consequences for Australians, said the associations, including:
- Missing communications from their insurer or not acting on them in time, resulting in cover being lost inadvertently;
- Leaving those with a changed situation at the time of renewal in a worse position, particularly those who have become pregnant, lost their job, or be experiencing income fluctuations (such as small business owners);
- Creating uncertainty for those who may be on a claim when five-year term expires; and
- Potentially triggering sharply increasing premiums for those left ‘stranded’ in older, closed products (if they had experienced adverse changes in health or other factors that may have left them unable to obtain cover in new products).
A number of other IDII measures had already been implemented that the associations believed would have a positive impact on viability for these products, including changes to ensure benefits were 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 associations said.
“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.”
