Advisers, clients still defying APRA on DII
Disability Income Insurance (IDII) continues to be a problem area for Australia’s major life insurers, with new analysis showing new business declining by nearly 14% in March.
The analysis provided by specialist research house, DEXX&R continues to point to risk advisers and their clients holding firm to the more generous DII products which pre-dated intervention by the Australian Prudential Regulation Authority.
The DEXX&R analysis showed DII new business in the March quarter was valued at $95 million – down 13.9% from the $111 million recorded in the December quarter and 1.3% lower than for the same quarter in 2022.
As well, DEXX&R noted that it’s attrition rate analysis for DII business had increased for a second successive year – up from the 9.4% recorded in March 2022 to 10.1%
“Discontinuances remain at historically low levels indicating that notwithstanding the small increase during the year to March 2022 retention remains at a higher level than that applicable over most of the past 10 years,” it said.
“This trend is expected to continue as the terms and conditions offered by pre-APRA intervention products are significantly more favourable than those offered by current on sale products.”
DEXX&R’s overall analysis of the life industry showed that total individual risk new premiums increased by 0.4% in the year to March to $1.4 billion with total risk in-force premium increasing by 3% up from $16 billion to $16.5 billion.
The analysis confirmed that TAL continued to retain market dominance with 33% market share followed by AIA with 19.9%, Zurich/Onepath with 14.6%, MLC Life with 11.4% and Resolution Life with 8.6%.
If the risk adviser recommends cancelling the old product only to put them in an inferior product, & then the client claims, next thing the adviser ends up being crucified by AFCA. What do you think advisers are going to do?
@Steve,
No adviser should recommend replacing an old legacy product with terms and conditions that were designed to protect a client, “just in case” or “what if” with an inferior one, even if the client complains that the premiums are too high in his current covers.
As an adviser, you are in the advice business, not in the how do I keep the client and put him/her into an inferior product just because things changed.
You have a fiduciary obligation to protect and educate the client, even from themselves.
In the mid 1980’s I was engaged by the old LUA to lecture the ramifications of the new Contracts Act and Aids testing on behalf of the industry.
There would have been more than 200 advisers from most of the major Mutuals back then.
As a precursor to my speech, I went around before hand to discuss the product of preference for Income Protection insurance and it came as no surprise that that the contract of preference was 2 year illness with Lifetime accident.
My question was “Why” and the answer was that “it was easier to sell !”
In my speech, I stated as fact that 90.0% of all IP claims were from illness and the bulk of them went beyond 2 years.
Under the Contracts Act, an adviser was obligated to recommend the best possible cover and if they didn’t then under the Act, they cfould be sued.
My comment to those in the room who have recommended inferior covers, “go triple your PI cover before the claim comes in”.
So,my advice to you is, if you can’t convince the client to retain a contract that is better than the inferior one, you have to walk away,otherwise AFCA will have your “butt in a sling”.
Allycat you are spot on. In the 1990s I moderated a number of ALA income protection courses. Most of the attendees were tied advisers from the mutuals. Two things occurred within three or four weeks of a 12 week course
(1) most open-minded mutual advisers realized that the income protection contracts they were forced to sell, when compared to other smaller insurer offerings, were to put it nicely, crap! You know, injury definitions that talked about “external, visible and violent”
(2) the second thing that occurred, once we debated benefit periods, it became obvious that most of those advisers were writing two-year benefit periods, because it was an easier sale. Smart advisers then went out revisited those clients and wrote five year benefit periods or even age 65, if that was available at that time because of their occupation
BAD NEWS !
Guess what – the newly amalgamated AFA (no more state branches) decided not to continue offering that course. As far as I’m concerned any adviser who hasn’t done that course is a danger to themselves and their clients. I’ve got 50 bucks that says the FAAA will not reintroduce that course, even if they f fell over it in the AFA archives
Well, what does that tell you about the quality of the new income protection policies? Another government intervention with ramifications. Wait until the AFCA complaints start rolling in, especially those with their claims being cut off after 2 years due to the total disability definition changing. Some of the terms/quality of the new IP products is sub that of industry super income protection too, so it becomes difficult to replace any product with the new style of IP products.
From an adviser’s point of view, at the end of the day, the Apra induced changes to income protection contracts in October 2021 were able to occur because our professional bodies were not stakeholders at the table. Mind you, I doubt those professional bodies would really have understood the implications, without input from risk specialists, and even then……….. .
Apra introduced those changes apparently without serious consultation with the insurer’s. At no stage did Apra ever thump the table to the insurers and demand that they reprice their current income protection contracts, which were clearly suffering a loss, because the product design was always driven by the need to maintain market share first, profit later.
Apra could have demanded extra capital be available to satisfy revised capital adequacy insolvency rules. Apra instead chose to take the nuclear option. It would appear the Apra Board had been invigorated by some recent appointments.
Apparently Apra are so disconnected from the industry that they had not heard about the introduction of the FASEA Code, and in particular the serious ramifications of Standard 5. Advisers were ” out of the loop”, not asked for their views. Right now, following the FAAA amalgamation, risk only specialist would be hard to find in the FAAA practicing membership.
Life risk advisers, the people who place 50% of new risk business with insurers, are not automatically considered as “stakeholders” by ASIC and Apra.
A fortnight ago Plan for Life released figures which clearly demonstrated that with a huge drop off in life risk underwritten new business of up around 60%, all of the insurers are now engaging in gouging on the remaining legacy policyholders, purely to stay in business. That’s not news to risk advisers!!
Where will this all end?. Apparently Mr Jones has no taste for intervention. I’ve long advocated that what is needed right now is that every CEO in in our shareholder – owned life insurance market, should ingest some truth serum, find a pair, get off their fat arses and bang the desk of the Treasurer and admit LIF was a total disaster. Pigs might fly – but not just yet.
If not, market failure, and about three life insurance companies will be our world very shortly.
I think what is being missed in these stats is the way clients are reducing sums insured, reducing benefit periods, reducing optional extras, and increasing waiting periods, so they can afford to retain their older policies. If total in force premiums have only increased by 3% at a time when sum insured indexation is high, lapse rates are low, and premium rates are increasing 20-30%, it implies in force policies have been significantly pruned.
Don’t get into details, APRA will get confused. They however are confused easily.
OLD RISKY wrote:-
“Apparently Apra are so disconnected from the industry that they had not heard about the introduction of the FASEA Code, and in particular the serious ramifications of Standard 5. Advisers were ” out of the loop”, not asked for their views. Right now, following the FAAA amalgamation, risk only specialist would be hard to find in the FAAA practicing membership”.
This absolutely boggles my simple mind. Not heard about FASEA?!! If it had not been YOU, Old Risky, I would seriously doubt that as true. i’ve learned you have a special in depth understanding and breadth of experience in the profession that should rarely be questioned. i very much appreciate your comments in these forums – I usually learn something new, as I have today – thank you. Cheers!