APRA Cracks Whip to Stem DII Losses


APRA has announced that it is set to resume its intervention into the life insurance market “…to stem ongoing heavy losses in respect of individual disability income insurance”.

In a letter to the life insurers, APRA has advised that from 1 October 2020, IDII providers will be subject to upfront capital penalties “…until APRA is assured they have taken adequate and timely steps to address sustainability concerns”, the authority says in a statement.

The statement explains that APRA wrote to life insurers and friendly societies in December last year to announce a range of measures – including capital charges – to address flaws in IDII product design and pricing that had seen the industry lose around $3.4 billion over the past five years (see: APRA Sets New Course for IP Sustainability).

Geoff Summerhayes …it’s now up to life companies to rise to the challenge of restoring IDII to a sustainable footing…

The programme of work was put on hold in March 2020 to enable life companies to focus on responding to the pandemic.

It says that since the December letter, life insurers and friendly societies have lost a further $1.4 billion through the sale of IDII.

“Consequently, APRA has concluded that the industry can wait no longer to start seriously addressing concerns over IDII that threaten the product’s long-term availability in Australia,” it says.

Specifically, APRA requires insurers to implement a number of measures designed to better manage riskier product features, including:

  • Ensuring IDII benefits do not exceed the policyholder’s income at the time of claim, and cease the sale of Agreed Value policies
  • Avoiding offering IDII policies with fixed terms and conditions of more than five years
  • Ensuring effective controls are in place to manage the risks associated with longer benefit periods

The statement adds that APRA has also asked life companies to consider and apply these underlying principles to their other insurance products.

APRA Executive Board Member Geoff Summerhayes says that IDII plays a valuable role in providing replacement income to policyholders when they are unable to work due to illness or injury.

“APRA wants to ensure it remains available to Australians who need it, but that won’t happen if life companies continue to haemorrhage money through the sale of IDII.”

…the pandemic may further exacerbate the problems with this product, so decisive action can no longer be delayed…

He says that APRA’s assessment is that the pandemic may further exacerbate the problems with the product, so decisive action can no longer be delayed.

“APRA has delivered a framework and financial incentives to fix this complex issue; it’s now up to life companies to rise to the challenge of restoring IDII to a sustainable footing,” Summerhayes adds.

Click here for a copy of the letter to insurers: Final individual disability income insurance sustainability measures.

A New Generation of IP Cover

Sally Loane…the  industry is committed to developing new, more affordable types of IP cover…

Meanwhile, the FSC has thrown its support behind the framework proposed by APRA and the Actuaries Institute consultation on governance for individual IP, saying it expects a new generation of income protection products to be available in 2021.

FSC CEO Sally Loane says in a statement that according to a recent KMPG report on international comparisons of IP products, Australia offers the most generous and comprehensive IP policies of any developed market.

She says this has exacerbated the recent increase in the incidence and duration of claims, including for mental health conditions.

“We know there’s a direct link between increasing claims costs and increasing premiums, which is why Australians have seen rising income protection premiums,” Loane says.

She says that to address this, the life insurance industry is committed to developing new, more affordable types of income protection cover to give Australians more choice.

She adds that APRA has set out its roadmap and that the life insurance industry is ready to design a new generation of products that will aim to deliver the three “A’s” of Availability, Affordability and Assurance (that the life company will there when customer needs to claim).


  1. A way to stem losses is to bring about changes to make it commercially viable for Advice Practices to start recruiting specialist risk advisers.

    There is capacity for 30,000 risk advisers to operate in Australia.

    Unfortunately, there is little appetite for Practice owners to take on the risk, as LIF and FASEA have made it all too hard.

    APRA, ASIC and the Government, need to see that if they want a viable and profitable retail Life Insurance Industry that allows all Australians the opportunity to attain Superior Life and Disability products, then the only way forward is to lighten up on the restrictive conditions and bring in commercial incentives and requirements that will push the Industry towards a more streamlined and efficient model.

    APRA will not fix the issues of rising losses, until the biggest issues of declining adviser numbers, declining New Business and Retention of existing policies are resolved.

      • It will increase claims which is a good thing.

        It is a numbers game and if the Life Companies can exponentially grow their premium books, it will take the pressure off continually increasing premiums, which is a major cause of lapses.

        Retention is a big problem and the current attempts to stem the losses by increasing existing customers premiums, is self defeating, as it causes even more lapses.

        Most Australians tend to either have no additional, or insufficient Life and Disability Insurance above their small amounts held in Super and most are under-insured.

        30,000 specialist risk advisers would generate Billions of annual premiums that would far outweigh additional claims and allow Life Insurers necessary breathing space to stem their losses, stabilize their premiums, while still providing a profitable and quality essential service to Australia.

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