- No (48%)
- Yes (40%)
- Not sure (12%)
Advisers are evenly divided on the question of whether APRA should have intervened on income protection insurance sustainability (see: APRA Sets New Course For IP Sustainability).
As we go to press, 46 percent of those taking our poll have voted ‘no’ to the question of whether they support APRA’s intervention. An almost equal number (43 percent), however, support APRA’s move, while around one in ten (11 percent) are on the fence.
Based around your feedback, the two differing schools of thought go something like this:
Supporting APRA’s Intervention:
- Decades ago it was obvious that all the bells and whistles offered under IP weren’t sustainable. The life companies have had plenty of notice.
- If something isn’t done, there won’t be a future for income protection insurance, so best to tackle it now.
- Life companies are all about protecting their competitive advantage and fear the consequences associated with being the ‘first mover’. So, APRA had to act.
Against APRA’s Intervention:
- It’s not an isolated issue – few things are. The problem is mostly related to over-regulation (read the Life Insurance Framework Reforms) which in turn has led to lower new business inflows to cover the outflow of claims. So, it’s not product design that’s the main issue; it’s industry over-regulation.
- Generally-speaking, history has demonstrated that when regulators become involved, the outcome will create further issues – an ‘even greater mess’.
Other comments have included a point centred around the adviser’s mandated requirement to respect their clients’ best interests. One adviser therefore asks whether it’s in the client’s best interest that in future, they will no longer be offered the opportunity to be covered under IP to age 65.
Other voices have called for the regulator to sit down with the life companies and other stakeholders for the purpose of finding other potential solutions to IP sustainability – in a more collaborative environment. Unfortunately, though, in this case, we think the horse has already bolted and there’ll be no turning back from APRA’s prescriptive solution for the future sustainability of disability income insurance.
Our poll remains open for one final week, as we welcome your further thoughts on this critically-important issue, which will have far-reaching consequences…
LIF collateral damage. The intervention could have been less deep if more new business was written.
This is an FSC own goal with uncertain outcome – if advised IP moves much closer to standard industry fund super IP there could be a race to the bottom with a few large clients (industry funds) demanding deep price cuts as they don’t have to worry about competition for IP.
Once you are on this downward spiral:
Disincentivising advisers =>
reduced new business =>
increasing losses =>
reducing product features =>
reduced new business and stronger competition from a few bulk buyers (industry funds), reducing margins =>
increasing losses …
RIP
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I’d like to know the losses on underwritten I/P policies (i.e. predominantly adviser initiated policies) versus the losses on non-underwritten policies. Perhaps these restrictions should apply to the latter and the process to obtain the former opens them up to the more sophisticated & tailored offering.
Where is the link to the poll?
This is the first dying canary in the mine which in my view highlights the unintended consequences of the life insurance reforms.
This result is down to simple arithmetic:
Fewer life risk advisers = less advice and less people seeking advice.
This has led inevitably to less new applicants taking out adequate cover.
Life companies base premiums and profitability upon a range of assumptions, these include new business premiums, expenses, longevity of policies and claims.
We haven’t been shown the data, but I suspect the lack of genuinely new inflows (not including policy holders who move from pool ‘A’ to pool ‘B’) has led to claims numbers getting completely out of balance. As a result of this, life companies are losing money hand over fist and clients who are insured within the pool have been left grappling with premium increases beyond all reasonable expectations, and many have opted to drop the cover – thus exacerbating the problem.
I accept that the above is somewhat simplistic and there will be other contributing factors but there can be no doubt that the lack of ‘new healthy younger lives’ entering the pool has to be a major factor.
Now we have the regulator demanding that insurers reduce the effectiveness of the cover within the market place. Drastically reducing the quality and reliability of the coverage which will be available from March 2020.
Many Australians will be disadvantaged by this move. Particularly SME clients, career changers and contractual workers. Working parents and unpaid carers will also have serious question marks over the level of cover which they will actually be able to rely upon if they become sick or disabled.
The level of financial commitments that members of our society take on are almost totally based upon their ability to generate income to pay for these. These commitments include mortgages, children’s education costs, caring for aging parents or other family members who require assistance as well as other household borrowings and living expenses.
Access to comprehensive Life Risk advice is essential. Australians deserve that this should be backed up by quality insurance products.
The answer to this issue is not to destroy the quality of the cover which protects Australians but rather to reduce the red tape surrounding advice in an effort to GET MORE YOUNG LIVES COVERED!
Instead we are witnessing the engineered and systematic destruction of an industry which provided an essential service.
The move announced by APRA is nothing short of a disaster and in effect runs the white flag up the pole for the Australian insurance market.
Surely there were other ways to address the issues? Is it too late???
It is a very sad time for those of us who passionately believe in the intrinsic value of quality insurance.
Sadly, if you believe the Life Insurance Industry hasn’t already been as a group to APRA to get this over the line you’re deluded. As a group they are protecting their own profitability and sustainability and avoiding a price/feature war and that is within APRA’s brief as it they are not there solely for the consumer but also the providers.
This is not necessarily a bad thing as it certainly cuts out ‘set and forget’ insurance advice.
However, my fear is that this has not been thought out entirely i.e. Guaranteed Future Insurability whether it be annually or at the new 5 year line, potential need for re-underwriting at 5 years, level premium structures that take years to be effective and blurred hiking of base pricing again as 5 years is very different to age 65 benefits.
There’s more to it but that’ll do for starters
I’m unconvinced re Agreed value as its not Guaranteed in most cases but I see it as being less of an issue
Just like the like companies did a few years ago with reductions to commissions, they use the regulator to do their dirty work! Watch existing IP Agreed premiums on policies go through the roof after March 2019. How are advisers then able to recommend to a client threatning to cancel their Agreed IP policy due to 20% plus increase in their premiums, change to a sub standard 5 year term IP indemnity policy!
100% correct. You don’t need to be Nostradamus to work this one out!
The end is nigh. Over zealous and ignorant regulators, crooked politicians who are all in the back pockets of the banks, have caused this. Its just disgusting how its been allowed to go on this long and that an entire industry is going down the drain as a result.
Yep. Now I am 100% convinced that the crooked politicians, life companies and banks really want to destroy any sort of independent advice. Good luck to anyone left.
I find it rather ironic that Geoff Summerhayes was happy to run a life office into the ground and then sell it on and move to APRA. He had years of opportinuties to make a stance and encourage the industry to follow him but he chose to do nothing What an amazing industry leader he was.
Geoff of all people should know that this stance ultimately will not solve to problems of the life offices. There are other methods that could be used here rather than remove agreed value policies from sale. An immediate example could be to only offer indexation as per the CPI rate, rather than 5% indexation year on year. When was the last time inlation was at 5%?
There are plenty of other ideas also, derived from having worked with actuaries in a life office that made profit on its Income Protection book, along with being an adviser.
Let’s hope that the APRA consultation with the life offices doesn’t fall on deaf ears.
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