Disability insurance products risk unsustainability: APRA
The Australian Prudential Regulation Authority (APRA) has continued expressing concern about poor disability income insurance (DII), writing in its Insight publication released yesterday that the performance and sustainability of DII products were under threat.
The piece said that, notwithstanding DII’s somewhat improved performance since 2015, the Authority remained worried about the commercial sustainability of the product in its current form.
In phase one of a thematic review into the issue, which focused on APRA-regulated life insurers, found that DII insurers faced:
- sustainability issues with the current benefit design and pricing structures;
- barriers to releasing a more sustainable individual DII product;
- a possible lack of alignment between the interests of primary writers and reinsurers, particularly in relation to older legacy portfolios; and
- potential room for improvement in primary writers’ oversight of, reporting on, and resourcing for, claims management activities.
APRA said that these issues needed to be addressed to create a sustainable product that benefits policyholders, insurers and reinsurers, and market stability. Such a product would avoid market disruption by minimising significant pricing increases or reductions in cover by insurers.
The Authority said that there was a high level of awareness within the industry of the issues facing DII products.
“APRA expects the whole industry to continue addressing the challenges facing individual DII, and put this product on a strong and sustainable footing after a prolonged period of underperformance,” the article said.
Phase two of the review, which would look at the primary writers driving the positive changes needed to mitigate the risk of deterioration of DII performance and enhancing sustainability, would occur in the second half of this year.
AUTHOR
Hannah Wootton
Recommended for you
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
The firm has announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels, citing a declining market and risk adviser numbers.
