APRA can control life insurers but not advice clients
The market and the underlying desire of financial advice clients to hold onto generous but more expensive disability income insurance (DII) products have defied the regulatory efforts of the Australian Prudential Regulation Authority (APRA).
The regulator has acknowledged that despite the fact it compelled the major life insurers to change their DII offerings with new products being introduced to the market in October, last year, many consumers are staying put.
Asked a question about the impact of its actions on new life sales, APRA deputy chair, Helen Rowell found herself having to admit to a Parliamentary Committee that while the regulator could force the life insurers to change its DII policy conditions and premiums, it could not force consumers to accept those changes.
“The drivers of new business volumes in life insurance are quite complex and linked to premiums charged and they priorities of consumers,” Rowell told Senate Estimates.
“The new products are very different to the previous products with more sustainable premiums and conditions but getting people to change in the current environment is proving a challenge,” she said.
However, she made clear that APRA expected the major life insurers to convince advisers and their clients of the virtue of switching to new products introduced as the regulator’s instigation.
“There has been a dip in new business volumes but our understanding from the insurers is that they are getting a reasonable response to their new products but it is taking time to explain the changes to both advisers and the policy-holders to get the take-up.
“It is early days, these new products were only put into the market in October last year and it something for us to monitor over the next 12 to 24 months,” Rowell said.
“We are expecting life insurers to have a plan to transition existing policy-holders to new products and we expect them to do that in a fair and equitable way but that it is a challenging process and not entirely within the insurers’ hands because those policy holders have a choice of keeping the existing policy with all the terms and conditions that go with that but also a significant increase in premiums to go with the losses which have been incurred by those products in the past,” the APRA deputy chair said.
“The alternative is to move to a newer product but that has different terms and conditions that are slightly less generous but are stably priced and sustainable going forward and that’s a decision between the life insurer and the policy holder. We monitor and review how that is being managed but its not something we can directly control.”