APRA admits post-intervention 45% reduction in IDII sales
The Australian Prudential Regulation Authority (APRA) appears to have conceded that its intervention in the individual disability income insurance (IDII) space has had only limited success and has declared that it does not see a need for further intervention in the life insurance industry at this time.
At the same time, APRA has acknowledged that the decline in the numbers of life/risk advisers over recent years has played a role.
“There has been a steady decline in retail advised product sales (including that of IDII products) in recent years, in part driven by the reduction of active advisors for these products,” the regulator said in response to questions from Senate Estimates.
“There was a disproportionately higher volume of sales prior to the APRA measures taking effect, as the market took advantage of products perceived as more generous than those that would be available post 1 October 2021. It has taken time for the market to understand the new products, which has contributed to lower sales immediately after the change.”
However, it conceded that its intervention in IDII had led to a 45% decline in IDII new business.
“Comparing the nine months following the APRA-initiated changes with the nine months preceding that change, there is a 45 per cent reduction in new IDII business (based on premiums),” it said.
“Given that there is a degree of seasonality with sales numbers, we have also compared the six months ended 30 June 2021 (all pre-APRA measures) with the 6 months ended 30 June 2022 (all post-APRA measures), which shows a reduction in new business of 39 per cent.”
“APRA does not collect data on the transition of customers from legacy IDII products to new products. Anecdotally, we are aware that, for the purpose of transitioning customers to the new generation of more sustainable products, different life insurers have different strategies in place, with varying degrees of success. As life insurance contracts are guaranteed to be renewable at the option of the policyholder, insurers can only transition customers who agree to move to a new product.”
“Product sustainability remains as a key pillar of APRA’s strategy for its supervision of the life insurance industry and, as part of our routine supervision work, APRA continues to monitor the market practices of life companies and review their progress against its expectations in relation to IDII.”
“APRA is reasonably satisfied with the progress industry has made in this regard. At this time, APRA does not see a need for further intervention in the life insurance industry.”
“It has taken time for the market to understand the new products, which has contributed to lower sales immediately after the change.”
Or perhaps the market understands the significant disadvantages of the new products very well, which has contributed to lower sales immediately after the change.
The other big decline in IDII is sums insured and other benefit levels for pre intervention products. Consumers have been slashing benefits from their existing policies to try and offset skyrocketing premiums. The next step will be significant lapses. APRA is deluded if they think they have solved the problem in IDII. The government is deluded if they think the societal underinsurance problem isn’t about to get a whole lot worse.
WOW!!
“Limited success”. A lawyer may correct me but section 52 of the NSW trade practices act deals with misleading and deceptive conduct. Surely APRA is responsible here for this statement?
They and ASIC were REPEATEDLY warned that they would decimate the industry with LIF, FASEA and product quality reductions. Now life sales solvency likely is more at risk than before as economies of scale are being destroyed by low numbers of remaining advisers and low numbers of newer and younger policy holders.
As these economies of scale were destroyed policy premiums went through the roof resulting in mass cancellations, waiting period extensions and benefit reductions.
Actual risk mitigation for policy holders has utterly collapsed increasing the risk to the government purse and increasing dramatically otherwise claimable occurrences which are now poorly or not covered at all by the remaining policies.
I had a friend, who works in policy design for a major life insurer confide in me. “Why anyone would buy one of the newer indemnity policies is beyond me”.
To describe this as a limited success is a breath taking misrepresentation.
If an adviser committed such egregious acts and professional incompetence as APRA and ASIC they would be prosecuted and potentially jailed.
ASIC, APRA, FARSEA & Government have utterly failed Advisers & the Australian public in numerous market interventions and 20 years of moronic legislation.
Yet not one single Pollie or Bureaucrat is ever held accountable.
How about these same Pollies and Bureaucrats trot out the same plan and let’s blame Advisers again.
FFS what’s next, oh yeh QAR backpacker call centres from Industry Super with unqualified, uneducated, unlicensed and unregulated sales teams to the rescue.
Can’t wait to see how well that plays out.
QAR RC on the way.
A good job by Senator McDonald (QLD Nat) in flushing these responses out. The Government clearly needs to pay attention to what is going on here. New business is critical to the life insurance market. They need new, younger lives coming into the risk pool to off-set the impact of the aging of existing policy holders. There is no other way to look at this than to say it is alarming. And let’s not think that Group insurance will solve the problem. Individual Advised business makes up well over 50% of all life insurance premiums.
It is rather surprising that APRA would intervene in the IDII market, expect life insurers to convert existing clients from legacy IDII products to new ones, but not track the progress of it.
The other interesting thing is their comment about not seeing a need for further intervention, as though they are comfortable with what is happening at the moment. That contrasts with what some of the Insurance executives are saying about TPD. Maybe APRA should be listening to them early, rather than wait for this to get much worse.
If ever there was an example of regulatory capture corruption, this is it. But it’s another own goal for life insurance companies. What a shocking record they have.
Their latest push was to get their own lawyer into the job of chairing QAR, who recommended life insurance companies are allowed to give financial advice to consumers, delivered by unqualified call centre jockeys and robots. What could possibly go wrong?
ASIC has done a great job removing risk writers from the industry = reduced inflows of new business = outrageously high premiums = poor quality products = insurance companies not paying claims = poor outcomes for consumers.
Insurance policies are not a simple product and the time needed to explain is sometimes extreme. Then if applying it is often declined and or loaded. The industry convinced all that they needed to reduce the fees/commissions paid to advisers and therefore slashed those. Then they added lets also double the responsibility (write back) period leaving a very low compensation for time and effort. You can guess what happened next many advisers stopped or reduced effort to this area. Then the insurers all got together and decided to change products and equal fees to advisers (in other areas of the economy this would be a crime and investigated as they colluded to influence the market)
ACCC describe the following:
Competition and anti-competitive behavior
Australian Competition and Consumer Commission
https://www.accc.gov.au/business/competition-and-exemptions/competition-an…
Competition and anti-competitive behavior | ACCC
So, we then ended up with products that designed to be inferior that are harder to claim on and compensation to advisers is much less: Result less volume! Less volume causes an increase in premiums that cause a further decline in insurance. What a Suprise!
Let’s have a committee think about what needs to be done. or simply open the market to competition that will lead to better polices and better compensation to advisers.
The ACCC gave them an exemption. They made a grave mistake in doing so. They should be held accountable for this mess, as should APRA and ASIC. But they won’t be.
In my opinion, every time that a change to this area has been made, two things are usually said;
Yet here we are.
It’s great being a Financial Adviser in Australia, isn’t it?
Apra have been living in a cloud ever since Peter Costello broke up the old ISC and established Apra in a hideaway in Sydney. Funnily enough not a lot of Apra staff living in Canberra wanted to go live in Sydney. Bend their priorities have always been about regulating lending.
They are NOW completely out of touch with the life insurance industry. They lost the networking capacity of the old management of the ISC, who used to get off their backside’s and go and talk to advisers at functions and pop into the offices at insurer HQ. In recent years Apra have had an influx of “can-do” operatives, who set about rocking the boat, without thinking things through. All consideration for “prudential” thought disappeared
It fascinates me that Apra never thought about the impact that that Standard 5 of the FASEA code would have on advisers seeking to change from the old legacy “generous” IP contracts to the post 2021 rubbish. Did APRA think about FASEA at all: did they talk to ASIC or even Mr Glendenning. Every adviser (and their AFSLs) who did some form of FASEA pre-exam training, suddenly became aware of the implications of Standard 5, and the need for effective communication, and, proof of that communication, when recommending the replacement of a pre-2021 IP contract.
The insurers constantly tell me that they were never truly consulted: they got the odd rumbling noise, but the first thing most of them heard about it was when the artillery opened up just before the parachute invasion. Apparently at no stage did Apra actually formally say to insurers ” we believe your current IP is underpriced, we are worried about age 65 benefit periods, and we’ll give you six months to revise the premiums”. There is no evidence that Apra ever instructed life insurers to start worrying less about market share, and shareholder value, than long-term sustainability.
If you read the language in this press release you cannot fail to notice that Apra still believe that insurers control risk advisers. It’s a throwback to when we were all tied advisers, under control, and did what we were asked to do. It’s been a common theme in Apra communications for at least a decade, while most advisers are now independent self-employed businesspersons, as the industry has evolved. Apra cannot expect insurers to dictate what we do, particularly now when the financial ombudsman has real teeth, and commissions are all identical – no special deals for big producers.
Advisers are a crucial stakeholder in this matter, but the AFA assured me last year that they would never consulted pre-October 2021. Total mind-boggling nonsense!. In Apra’s eyes, life risk advisers are not ” stakeholders” to be consulted in any discussion about the design or sale of insurance products!
Apra expected advisers to accept the business risk of offering, by any standard, a totally deficient replacement protection for their income. Thankfully, most of us saw the light, or someone else flicked the switch on.
“However, it conceded that its intervention in IDII had led to a 45% decline in IDII new business.”
Government intervention at its finest.
If APRA passed the policy terms & conditions past any adviser the adviser would have told them what would happen – no adviser wants to switch products, policy retention to old products, AFCA & compliance risks of recommending the new product. Ahhh, but government bureaucrats know better…. Just like LIF.