APRA has revealed it is yet to make a final decision as to whether it will proceed with the requirement for a five-year renewal of contract term under individual disability income insurance (IDII) policies.
Responding to a question from Senator Ben Small at a Senate Economics Committee hearing last week, APRA Deputy Chair, Helen Rowell, said the authority was aiming to communicate its decision on whether it would proceed with the five year renewal term before the end of March.
Senator Small had noted that the final tranche of APRA’s new IDII requirements was scheduled to commence on 1 October 2022 and that it requires life insurance underwriters to provide contract renewal every five years, subject to policy terms and conditions that apply at that time (see: IP Policy Contract Terms- APRA Gives Insurers Another Year).
He asked what disadvantages, if any, this could result in for consumers, particularly considering issues such as reduced terms, increased costs or, in extreme cases, the total loss of cover.
Rowell told the committee APRA was aware of the implications and the pros and cons of moving to the five-year policy contract term.
She said there were issues regarding certainty and stability for policy holders as well as insurers, which needed to be balanced against other concerns the Senator referred to, such as continued access to cover and issues associated with the need to re-underwrite existing policy holders.
Rowell said these were complex considerations to balance. When it introduced the IDII measures she noted APRA felt there was a need to make significant changes in the IDII market to address the underlying losses and poor outcomes for policy holders that were occurring.
“The five-year contract term was one of a set of measures. It is the only one that remains to be put in place and we did defer it because of the feedback we had from industry about some of the challenges and complexities.”
Rowell added that APRA has had further engagement through the FSC and with individual insurers over the last couple of months “… and we are still discussing with them those challenges and the pros and cons of that measure.”
APRA will need to communicate its response to industry as to proceeding or otherwise with the particular provision in the coming months
She told the committee APRA will need to communicate its response to industry as to proceeding or otherwise with the particular provision in the coming months.”
Asked about a firm timeline on that communication, Rowell said they don’t have one “…but we are aware of the importance and the urgency. It is actively under discussion and consideration within APRA.”
While there were no guarantees, she said APRA hoped to communicate by the end of March.
“That is the goal to we are working towards – to make a decision by the end of March as whether we are proceeding with this requirement or not,” she said.
Anecdotal evidence from honest (?) BDMs is that IP new business is down at least 40% across most companies. Surely that must tell Apra that their wonderful plan has NOT achieved its policy aims.
Whether Apra likes it or not, risk specialist advisers are stakeholders in this debate. We were not considered in round one. Apra has to understand that it is risk’s advisers who hold the key to convincing clients with existing IP policies to take a huge risk and purchase a replacement (post 2021 ) contract purely for the purpose of seeking protection from the gouging that is going on in legacy IP contracts.
The evidence is that experienced advisers are voting with their feet: no one wants to be the first adviser to appear at the newly formed monitoring body, and run the risk, if they are an adviser continuing in the business on the basis of 10 years continuous experience AND no blemishes on their record, that they could lose their entitlement if a client claims dissatisfaction with the recommendation to replace an existing legacy contract with any one of the items on the poisoned platter of goodies currently available. And then there’s that LIF two-year clawback!
Here is a thought for Ms Rowell. Why not seek opinion from the risk specialist advisers who are the frontline of this mess. You might get a few opinions that you might not appreciate. And please don’t ask the FPA to nominate a risk advisor for any little panel you might like to set up
Well stated Oldie! Clear thinking on your part as usual. Many salient points there. As you say, let’s NOT forget the 2 year clawback period. STILL does my head in, how the life companies bent advisers over by standing silent on that one. Methinks they did a ‘little’ more’ behind the scenes than stand silent though – for their own benefit . . .
Well stated Oldie! Clear thinking on your part as usual. Many salient points there. As you say, let’s NOT forget the 2 year clawback period. STILL does my head in, how the life companies bent advisers over by standing silent on that one. Methinks they did a ‘little’ more’ behind the scenes than stand silent though – for their own benefit . . .
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