Both the FPA and the AFA have welcomed the announcement by APRA that the proposed insurance policy contract term measure for individual disability income insurance (IDII) will be suspended for at least two years.
A joint statement from the two industry associations says they have worked together advocating for this outcome with senior leadership at ASIC and APRA and that APRA’s decision “…is a great result for consumers and protects them from a number of unintended negative consequences.” (See: APRA Takes Aim at Industry in Suspending IP Contract Term Requirement.)
FPA CEO Sarah Abood and AFA CEO Phil Anderson explain that the measure was part of a planned package focused on improving the sustainability of the IDII market.
The arrangement would have seen new income insurance contracts from October 2022 capped at a maximum term of five years, rather than being guaranteed renewable – typically until the retirement age of the policyholder – as is presently the case.
“While policyholders would have had the option to re-apply for cover, the risk is that new contract terms and conditions may have changed, and policyholders would be underwritten again based on possibly changed income, occupation and pastimes.”
They say the measure would have had a number of unintended negative consequences for Australians, including:
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Phil Anderson. Missing communications from their insurer or not acting on them in time, resulting in cover being lost inadvertently
- Leaving those with a changed situation at the time of renewal in a worse position, particularly those who have become pregnant, lost their job, or be experiencing income fluctuations (such as small business owners)
- Creating uncertainty for those who may be on a claim when five-year term expires
- Potentially triggering sharply increasing premiums for those left ‘stranded’ in older, closed products (if they had experienced adverse changes in health or other factors that may have left them unable to obtain cover in new products)
The statement adds that a number of other IDII measures have already been implemented that should have a positive impact on viability for these products, including changes to ensure benefits are now based on income at time of claim.
“We believe more time is needed to assess the impact of these changes on the overall sustainability of the market,” Abood and Anderson say.
