APRA has suspended the introduction of maximum terms for IP policies for a further two years, slamming the life insurance sector in the process for not doing enough to address the issues associated with implementing this measure.
In a letter to life insurers and friendly societies this week, in which it says it has decided to suspend the individual disability income insurance (IDII) policy contract term measure for at least two years, APRA Deputy Chair, Helen Rowell, sets out the background and rationale for introducing maximum terms for IDII contracts.
In acknowledging the challenges associated with what she refers to as the “operationalisation of the IDII policy contract term measure”, Rowell emphasises, notwithstanding these challenges, this measure provides industry with a valuable opportunity to make changes that would improve both IDII sustainability and effective customer engagement.
It is therefore disappointing that the industry appears not to have engaged with this opportunity as fully and openly as expected…
Having re-affirmed APRA’s agenda to implement IDII policy contract term measures, Rowell takes aim at insurers and the broader industry in stating: “It is therefore disappointing that the industry appears not to have engaged with this opportunity as fully and openly as expected, or with a view to sufficiently shift away from problematic legacy practices where needed.”
This approach from APRA, in which it is critical of the the industry for not doing enough seems to contrast to an extent with statements made by Rowell at a Senate Economics Committee hearing last month, during which she acknowledged the challenges and complexities associated with limiting IDII contract terms. At the hearing, she noted APRA was aware of the implications and the pros and cons of limiting IDII contract terms, stating there were issues regarding certainty and stability for policy holders – as well as insurers – which needed to be balanced against other concerns, such as continued access to cover and issues associated with the need to re-underwrite existing policy holders (see: Five-Year IP Contract Renewal Term Under Review – APRA).
This week’s open letter, however, appears to apportion responsibility for the suspension of maximum IP contract terms at the door of reluctant and slow-to-move insurers, rather than with what Rowell acknowledged to the Senate Economics Committee were complex considerations to balance – and whether the measure itself has more pros than cons associated with its implementation.
APRA’s Expectations
While the IDII policy contract term measure is suspended, APRA’s letter notes it expects life companies to “…demonstrably strengthen customer engagement,” which it says has been shown by the recent industry submissions to be an area of weakness:
“This includes collecting information on changes to policyholder’s circumstances, including occupational and financial circumstances and dangerous pastimes, to enhance the ability of life companies to understand and manage the risks of their portfolios.” The regulator says that, over time, such information could also be leveraged to improve customer experience and inform ongoing review of the appropriateness of products for their target market.
During the period of suspension, APRA states it also expects life companies to:
- Maintain a strong focus on IDII sustainability, including the uplift of capabilities and practices in accordance with APRA’s previously communicated expectations
- Consider conduct-related matters arising from various law reforms alongside APRA’s sustainability measures, as previously communicated by ASIC. These reforms include the design and distribution obligations, unfair contract terms, claims handling and duty of reasonable care
- Take steps to support policyholders in unsustainable IDII products transitioning to newer, more sustainable products, where appropriate
- Actively contribute to the Treasury reviews mentioned above, with a specific focus on both the sustainability of products and distribution and appropriate outcomes for policyholders
- Seek to identify possible alternative ways to effectively address the risk of price being the only lever to deal with contract terms that are not sustainable
- Strengthen their engagement with other industry stakeholders, particularly financial advisor bodies, in support of developing more robust solutions
Click here to read APRA’s open letter to life insurers and friendly societies.
APRA, after enforcing massive change on the Life Insurance Industry that has caused more complexity, more cost and more confusion amongst all Australians, has now come to the conclusion that this is more difficult than it could have been.
ASIC may also have similar feelings and we know the Government and Opposition are now realising that the mountain made from a mole hill, has backfired spectacularly.
For every problem or issue, there is ALWAYS an EASY solution that works and those solutions nearly always come from the people at the coalface, though in Australia, why would you go down that path, when you can spend and waste multi Billions of dollars paying vested interest groups which includes Lawyers, Education entities, Regulators, Public servants, auditors and others who put out their hands for funding, with little or NIL experience on the subject matter, except for knowing how to screw the ACTUAL people who do the ACTUAL work, by creating a miasma that leads us all through the maze of complexity, to reach the other side, which actually ends up being where we started.
This course of action is just another in a very long line that takes us to the real punchline;
Success in any endeavour, can only come about IN SPITE OF, not due to Government involvement.
People have a misconception that Governments lead. This is 100% wrong.
Government is nothing more than an eclectic bunch of people who think they know best, where in actual fact, they usually know less, as common sense flies out the window when they step through the door into a vipers nest of deal making behind the scenes that invariably ensnares them and corrupts any sensible thoughts that might actually solve the issue.
Companies are right to be cautious in all of this. If APRA is so conscious of the impacts, why are they not more cognisant of the difficulties in asking Australians to accept lower quality of covers for a pittance savings in premiums?
This whole palava is, after all, based on reducing the covers available to Australians who need it most – the self employed, those on less stable incomes. My impression is that decision-makers with secure incomes and high levels of assets and low levels of debts, are making their decisions based on their own positions – and not those of the people who actually need these types of cover.
Surprise surprise the bureaucrats got it wrong again, and why wouldn’t they? They get it wrong most of the time because they do not talk to people like the financial advisers who deal with this every single day. Right from the Wallis enquiry, code of practice, FSR, LIF, Trowbridge, IDII and the FASEA fiasco, which the Government got rid of after 2 years, mostly all failures, and that’s what happens when bureaucrats and lawyers who do not understand the ethos of our great industry, make rules for us to abide by. We now have a dedicated committee of qualified financial advisers that will meet with the Government on future industry reforms and this is long overdue. BUT WILL THE BUREAUCRATS LISTEN! I have my doubts. But I would still encourage AFA President Sam Pereira, Phil Anderson CEO, young Brett Wright and their enthusiastic “volunteers” to keep playing hard ball.
Good words Godfrey however I think you’re still letting your eternal optimism blind you to the truly dark forces working against clients and advisers in the risk industry (FP/invest ind too). Those great guys you mention there, despite their best efforts and protesting, will only be rearranging the deck chairs on the big boat until it hits the fan in 2026. Marking time – nothing more, sadly.
You know as well as anyone that riskies, by and large, can’t justify writing new business currently thanks to inappropriate compliance time wasting, 2 yr responsibility on remuneration earned and spent, reduced commissions et al. Older advisers with a good renewal stream will muddle through for a while but the new entrants simply can’t make ends meet no matter how hard they try. The deck is profoundly stacked against them thanks to the idiocy and over-zealousness of regulators and other entities like company execs and pollies.
Those are the reasons I’m now OUT after 36 years and those are the reasons all riskies will be out by 2027. God help clients when they have top arrange and claim using only online facilities without a loyal adviser who knows the system!
It’s like Morrison and political problems… ignore them until they become disasters e.g. fires, floods, vaccines, women’s issues etc. Conservative tactics fail in the long run. Why? Because they don’t adapt to reality since “everything is fine” despite the fact the house is on fire.
Just what we need, bloody APRA mucking things about and jerking advisers around – after everything else. I know that most here may deride me for the following comments which they’ll see as ‘glass half full’, at best, but it really is disingenuous to relay anything else right now.
Sadly I have lost all hope for our once great industry. After 36 years in it and most of that as an enthusiastic, motivated and successful risk planner, what I see now is an industry hijacked by politicians and self-interested executives only eyeing their next election or quarterly bonus above all.
I know the players and their puppetmasters and I can tell you their interests and that of clients and advisers do not merge at any point. They want advisers gone and they are almost at goal fulfillment on that one. RoboAdvice in a new form is coming faster than most realize along with an accompanying compliance nightmare that will rip what’s left of the game away.
Risk advisers with a prescient view will ensure they are OUT by 2026, at the latest, if they know what’s good for them. They certainly won’t be profitable at that point – even if they are somehow managing to be now. That will be the end of any semblance of our once great industry.
“Understand this: Things are now in motion that cannot be undone.” — Gandalf the White
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