AIA Australia appears to be the first cab off the rank in launching the next generation of income protection products into the Australian market.
Responding to APRA’s intervention into income protection insurance products at the end of last year (see: APRA Sets New Course for IP Sustainability), the insurer is set to launch a simplified, complementary IP solution called Income Protection CORE.
According to an initial positioning guide for advisers released by AIA, Income Protection CORE “…is about getting back to basics and focusing on what Income Protection cover was designed to do.”
The fundamentals remain the same, in that the indemnity-style product will deliver a monthly replacement income where the benefit is based on the insured’s current income, should they become totally or partially disabled and unable to work.
The new product is to be offered along-side AIA’s existing and more extensive Income Protection product and is intended for those consumers for whom a more scaled down ‘back-to-basics’ solution reflects a better fit for their circumstances.
A selection of key differences between AIA Income Protection and AIA Income Protection CORE include:
Income replacement ratios
The new product will offer up to 70% of pre-disability income for 24 months of benefit period, reducing to 60% for the remainder of benefit period. This compares to up to 75% of pre-disability income under the existing product.
Definition of disability
A tighter definition of disability will apply under Income Protection CORE:
“Unable to perform the Material and Substantial Duties of your Own Occupation for initial 24-month Benefit Period and a Suited Occupation thereafter.”
The definition of disability under the current offer is:
“Unable to perform one or more essential income producing duties of the usual occupation for more than 10 hours p/w. Total Disablement – Multi Definition also available under Extended Indemnity”
Income definition
The Income Protection CORE offer excludes employer superannuation contributions for employees, whereas the existing income definition can include superannuation contributions for employees.
Other feature and benefit differences under Income Protection CORE include:
- Tighter policy terms and expiry dates
- Reduced number of waiting period options
- Significantly reduced benefit period options – 5 years and to age 65 only
- More restricted definition of partial disability
- Broader list of benefit offsets
- No additional optional benefits
In noting that its Income Protection CORE offer is designed to address the chronic and ongoing industry issues of affordability and sustainability, AIA notes this new offer is “…aligned to APRA’s guidelines.” It adds the benefits to advisers and their clients can include:
- Addressing long-term affordability concerns
- Increasing retention
- Minimising premium rates
- Initiating a stepping stone insurance strategy
Riskinfo understands Income Protection CORE will be launched into the market in two stages early in the New Year, with an initial launch set for next month, followed by an updated version the insurer is looking to release sometime in March 2021.
“Launching in January will enable AIA to help support advisers and industry to transition and adjust. Given the significance of the change it will ensure that when the industry switches over, advisers and insurers are ready,” stated AIA’s CEO Australia and New Zealand, Damien Mu.
Advisers can click here for more details on AIA Income Protection CORE. Riskinfo will monitor its two-stage launch and report further details in early 2021.
The introduction of Income Protection CORE follows the recent release by AIA of its new Crisis Extension trauma insurance solution (see: AIA Australia Launches New Trauma Product Option).
Seriously, how will any quality Risk writer be able to sell this, if these are the headline points of this policy, what other negatives will be hidden in the fine print? I struggle to see how this type of policy would have any differentiating factors from that offered via a Superfund. instead of increasing their profits, I would not be surprised if this is the death note for individual IP policies.
Unless I’m missing something here – happy to be corrected
A lot will depend on the price as industry fund super is now getting as expensive in many cases as full-featured advised insurance. If this policy is cheap enough it could significantly increase the size of the market. Currently IP for women over 48 is getting prohibitively expensive.
But yes, it is clearly an overreaction that wrote those terms and it would not be my first choice.
On the other hand BT will put through some drastic price rises for existing policies next year and the others may well follow suit.
My recommendation: Provide a policy with a mental health exclusion as the strong rise in mental health claims are one of the core issues. There may also be other ailments that are much less likely if you lead a reasonably healthy lifestyle – perhaps a policy that is only active if your BMI is 33 (35, 36?) or under, though that seems a lot less workable.
Define ” Material and Substantial” and define ” suited occupation” please ?
I would suggest this really means the equivalent of each and every important duty.
I would also suggest this is now an ” any occupation” definition IP contract just like the old AC&L Lifetime Accident and 5 year Illness basic contracts years ago that assessed the first 24 months against the current occupation and then any occupation after that……and that is when the claim starting falling apart at the seams when the insurer then also defined the condition as an illness to limit the maximum claim period to 5 years, when the original condition was caused by an accident or injury.
Although the discrepancy between the injury and the illness benefit period will not exist, it will still allow the insurer to avoid a claim if the claimant is deemed to be able to work in another occupation. (even though they have had no experience or training but may be “suited”).
Believe me, this is no step forward in any direction.
It is retrograde.
How exactly will this make income protection sustainable when the existing products are still for sale? The existing products are the contracts that are hemorrhaging cash.
You’d want to see a price differential of at least 30% – with a strong reason to believe that would difference would be sustained for more than 5 years at least – before going near this with a bargepole.
AT LEAST 30%.
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