APRA says IDII remains a work in progress
While data continues to show that consumers are clinging to their old individual disability income insurance (IDII) policies, the Australian Prudential Regulation Authority (APRA) has sought to portray the situation as a work in progress.
APRA’s annual report has suggested that progress is being made but that the major life insurers need to do more work around the issue.
APRA’s claims around IDII insurance come following its 2019 intervention in the IDII market by imposing additional capital requirements aimed at encouraging life insurers to address perceived flaws in their IDII products.
Recent data and analysis released by specialist research house Dexx&r found that discontinuances with respect to IDII remained at historically low levels suggesting the trend was 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”.
However, the APRA annual report said that the regulator’s “program of work to support the long-term sustainability of IDII continued during the year”.
“While progress has been made resulting in a reduced capital requirement for a small number of insurers, the work required by industry ongoing,”
“APRA has maintained IDII market monitoring activities and taken appropriate action where there were concerns with specific products or market behaviour,” it said.
“Commencing in late 2022 and continuing for the remainder of the period, APRA reviewed the progress of several life insurers in meeting APRA’s product sustainability expectations, to assess whether a change in their IDII capital charge is warranted. As a consequence, changes to the charges for relevant insurers reflect the progress made.”
Yes we have a perception of a problem with IP with the stat funds of the life offices, funding and terms etc ….for the INSURERS.
Guaranteed renewable means it’s up to the client. So yes you can save some money by taking this sh!t policy (like a Daewoo) or you can keep a late model European car that has good performance, looks better and won’t break down. It might cost a little more, but is tax deductible at least, which one do you want?
From the advisers perspective, take this sh!ttier policy, you get to save some money and AFCA will make me pay if you have a medical condition that falls in between unless my file notes are inch perfect and I’ve covered my arse 3 times over.
To expect a policy outcome because the bureaucratic machine says so is just further examples of government and regulatory ineptitude.
I think we need an AFCA for government. Those found guilty should be prosecuted, fined or jailed. We’ll call this panel of self appointed experts BIBIC
Bureaucratic Ineptitude Bumbling and Idiocy Council.
As an adviser it is close to impossible to recommend someone switch to the new policies because they are complete and utter rubbish. The list of issues is long with another complicating factor being that the cover within most superannuation funds is better than the rubbish that APRA has forced on the market (apparently they don’t have the sustainability issues the retail insurers had). APRA will achieve their goal of killing off the advised risk market in the next few years. Hopefully Jim Chalmers can run a budget surplus given the poorly insured will end up on welfare and probably homeless.
Work in progress = failure (again) by the government. What would the risk industry look like without LIF and IDII intervention? My guess, it would probably be much healthier.
Not sure that’s a guess – I think we all feel this is a fact that the Risk Industry would be in far better shape!
The hard facts on IP is that Apra took the nuclear option in 2019 and in 2021. Insurers tell me they were never truly consulted, never given any indication of the then Apra’s board thinking in the lead up to 2019. The Apra board has changed since, and some of the bulldozing board activists have departed, but this latest press release gives us little hope –. Apra still haven’t listened.
The bottom line is that not only did Apra fail to consult insurers in a meaningful manner, Apra also ignored the other stakeholder in the sale of IP products – us, the advisers. If only Apra had asked life risk specialists, we would have told them there was this new problem called the FASEA code, and in particular Standard 5, which imposes onerous and draconian requirements on advisers in communicating replacement recommendations to clients, as outlined by Wildcat.
And if Apra was really serious about seeking to replace so-called “unsustainable” legacy IP products, then it would not have designed the IP rubbish that we currently are compelled to offer our clients. As noted by Scott, there’s not a huge amount a difference between (say) the IP policies currently offered for retail sales than those on offer by industry super default funds. Only commercial underwriting separates purchased IP cover in industry funds from retail offerings.
But at least retail funds are guaranteed renewable product where the terms and conditions cannot be changed by the insurer without permission and agreement from the insured – at least for the time being!
The issue of course is that the “advised” retention of existing legacy IP products has contributed, along with the policy disasters of LIF and FASEA and an exceptional effort by ASIC in compliance overload, to the 60% overall decline in new business sales. In my view that’s primarily because most risk advisers meeting with a new client tend to approach clients on the basis of being able to offer better protection of income and lifestyle.
You can’t do that with the IP rubbish that is on offer at the moment.
And has anyone heard Apra comment on the current round of premium gouging from every retail life insurer on their legacy products. That sadly was all very predictable and it would appear that Apra cannot really be bothered going any further than the standard capital adequacy insolvency reports.
@ Bill Brown,
Sorry mate, your belief that existing policies are guaranteed renewable is a dream.
All the life company has to do is increase the premiums by 30.0% above CPI and then see if clients think that’s reasonable.
Life companies when there were a plethora of them (57 at one time) all decided that “Lifetime” benefits were unsustainable and you can’t get a better example of when one major life company (which company ?) after removing the Lifetime benefit, then, over a 2 year period increased existing policy holders premiums by 51.0%.
I was, what was known as, a preferred adviser with that life company and over a 5 year period gave that company a lot of clients, that were mainly professionals.
I never had one claim even though others may have. But my clients were cannon fodder, because the life company wanted a way to get clients off”lifetime “benefits regardless,….. because of the contingent liability.
If you think that guaranteed renewal is the only saving grace,….one of us doesn’t understand the business you are in.
The lack of competition and product differentiation thanks to APRA and others only guarantees that this situation is like trying to save the “titanic”: after hitting the iceberg.
totally agree Alleycat, guaranteed renewable has been a BS term for a number of years now as the life companies will simply crank up the price and force consumers out of the product. Nobody actually believes in the guaranteed renewable concept anymore, bit like the “level” premium concept……
To Tony & Alleycat – of course your point is quite valid, what’s the use of a guaranteed renewable contract when the insurers can jam up the premiums by outrageous percentages every year. But I’ll take solace in the fact that for those clients who retain their policies, at great expense, that the insurers are unable to change the terms and conditions without client approval. Of course that doesn’t stop some of their claims areas treating today’s claims on legacy contracts as though they were claims on today’s IP rubbish.
I often wonder what it would have happened if the old ISC would have still been in charge, rather than this bunch of academic “neer do wells” who apparently have no experience of the coal face. I argue, based on my observations at the time, that the ISC would have paid a friendly visit to the CEOs and the boards of insurers, suggesting nicely that their generous products were grossly underpriced and needed to be up priced to remain solvent in the long term. That’s how the ISC did business, before Peter Costello thought it was a great idea to split up the ISC and put bits of it with ASIC and the prudential regulatory functions with a new body called Apra.
Costello decided to move Apra staff to Sydney, to be closer to the “clients”. They lost a lot of staff and for a long time Apra was totally ineffective because of that poor policy decision. And we, the mug advisers, are now suffering along with our clients.
My short and sweet main point reply to APRA’s latest meddling – start focusing on what advisers and what the IDII policies DO for the client instead of what they don’t do for the insurer. It’s what I call “the windscreen scratch approach” which is constantly looking at the tiny imperfections instead of the bigger picture (and much larger benefit).
Every time there’s Government intervention or legislation introduced, advisers are made to swallow the propaganda line from the regulators that “it’s in the best interest of consumers”. Yet here we are (again), where consumers ARE in a better position as a result of the work their adviser did with the older IP / DI policy instead of the now available policies, which others before me have also already identified “are rubbish”, being told by APRA that insurers aren’t doing enough to push those clients out of the older (better) policies into the new “rubbish policies”. This is the opposite of “what’s in the best interest of the consumer” – and OUR clients.
Seriously APRA….you must be joking!
Not on your life would any DECENT adviser recommend swapping their client out of an old Premier, PLUS or comprehensive IP policy for one of the basic skeleton policies available today. It’s NOT good for the client and it also certainly opens the adviser up to facing legal action for the poor advice recommending such action.
Are these regulators working for us – or against us?
What a hot, steaming, stinking brown pile of a stain-ridden mess into which our once-great profession of risk advice has devolved. Thanks to mealy-mouthed self-absorbed career politicians. Thanks to APRA/ASIC. Thanks to the self-absorbed special interest groups who know how to yell louder than anyone for attention and media bites. Thanks to life company execs without the spine, persistence or integrity to look out for and champion their own companies, advisers and clients. Thanks to adviser acquiescence through their weak and self-absorbed so-called industry associations(!) . . .
One one hand we have politicians making all the correct the noises required to bide for time and make us ‘think’ we have a voice in all this. On the other hand we have ASIC and APRA being grossly duplicitous – they fix commissions across the board in a relentless continuation of their anti-adviser persecution but won’t do the same to premiums to help consumers. APRA/ASIC ‘could have’ forced insurers to standardize premiums, outlawing ludicrous YOY increases for the betterment of consumers. But no, they didn’t. Instead they force these anti-consumer style IP products on the industry and destroy any chance that any consumer has of maintaining quality cover to protect their families.
They should be ashamed of themselves, be stripped of their jobs & benefits and be prosecuted to the fullest extent of the law for robbing consumers of this precious protection for their incomes. It is classic abuse of office and dereliction of duty. So, look me in the eye and try to tell me that my opening sentence is not spot on the money.