{"id":52342,"date":"2020-10-01T12:29:56","date_gmt":"2020-10-01T02:29:56","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=52342"},"modified":"2024-10-30T08:45:23","modified_gmt":"2024-10-29T22:45:23","slug":"apra-resumes-intervention-to-stem-insurers-idii-losses","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2020\/10\/01\/apra-resumes-intervention-to-stem-insurers-idii-losses\/","title":{"rendered":"APRA Cracks Whip to Stem DII Losses"},"content":{"rendered":"<p><a href=\"https:\/\/www.apra.gov.au\/\" target=\"_blank\" rel=\"noopener noreferrer\">APRA<\/a> has announced that it is set to resume its intervention into the life insurance market &#8220;&#8230;to stem ongoing heavy losses in respect of individual disability income insurance&#8221;.<\/p>\n<p>In a letter to the life insurers, APRA has advised that from 1 October 2020, IDII providers will be subject to upfront capital penalties &#8220;&#8230;until APRA is assured they have taken adequate and timely steps to address sustainability concerns&#8221;, the authority says in a statement.<\/p>\n<p>The statement explains that APRA wrote to life insurers and friendly societies in December last year to announce a range of measures \u2013 including capital charges \u2013 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: <a href=\"https:\/\/riskinfo.com.au\/news\/2019\/12\/03\/apra-demands-new-course-for-ip-sustainability\/\" target=\"_blank\" rel=\"noopener noreferrer\">APRA Sets New Course for IP Sustainability<\/a>).<\/p>\n<figure id=\"attachment_47374\" aria-describedby=\"caption-attachment-47374\" style=\"width: 150px\" class=\"wp-caption alignright\"><a href=\"https:\/\/riskinfo.com.au\/news\/files\/2019\/12\/Geoff-Summerhayes.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-47374\" src=\"https:\/\/riskinfo.com.au\/news\/files\/2019\/12\/Geoff-Summerhayes.jpg\" alt=\"\" width=\"150\" height=\"180\" \/><\/a><figcaption id=\"caption-attachment-47374\" class=\"wp-caption-text\">Geoff Summerhayes &#8230;it\u2019s now up to life companies to rise to the challenge of restoring IDII to a sustainable footing&#8230;<\/figcaption><\/figure>\n<p>The programme of work was put on hold in March 2020 to enable life companies to focus on responding to the pandemic.<\/p>\n<p>It says that since the December letter, life insurers and friendly societies have lost a further $1.4 billion through the sale of IDII.<\/p>\n<p>&#8220;Consequently, APRA has concluded that the industry can wait no longer to start seriously addressing concerns over IDII that threaten the product\u2019s long-term availability in Australia,&#8221; it says.<\/p>\n<p>Specifically, APRA requires insurers to implement a number of measures designed to better manage riskier product features, including:<\/p>\n<ul>\n<li>Ensuring IDII benefits do not exceed the policyholder\u2019s income at the time of claim, and cease the sale of Agreed Value policies<\/li>\n<li>Avoiding offering IDII policies with fixed terms and conditions of more than five years<\/li>\n<li>Ensuring effective controls are in place to manage the risks associated with longer benefit periods<\/li>\n<\/ul>\n<p>The statement adds that APRA has also asked life companies to consider and apply these underlying principles to their other insurance products.<\/p>\n<p>APRA Executive Board Member <strong>Geoff Summerhayes<\/strong> says that IDII plays a valuable role in providing replacement income to policyholders when they are unable to work due to illness or injury.<\/p>\n<p>&#8220;APRA wants to ensure it remains available to Australians who need it, but that won\u2019t happen if life companies continue to haemorrhage money through the sale of IDII.&#8221;<\/p>\n<blockquote><p>&#8230;the pandemic may further exacerbate the problems with this product, so decisive action can no longer be delayed&#8230;<\/p><\/blockquote>\n<p>He says that APRA&#8217;s assessment is that the pandemic may further exacerbate the problems with the product, so decisive action can no longer be delayed.<\/p>\n<p>&#8220;APRA has delivered a framework and financial incentives to fix this complex issue; it\u2019s now up to life companies to rise to the challenge of restoring IDII to a sustainable footing,\u201d Summerhayes adds.<\/p>\n<p><a href=\"https:\/\/www.apra.gov.au\/final-individual-disability-income-insurance-sustainability-measures\" target=\"_blank\" rel=\"noopener noreferrer\">Click here<\/a> for a copy of the letter to insurers: <em>Final individual disability income insurance sustainability measures.<\/em><\/p>\n<p><strong>A New Generation of IP Cover<\/strong><\/p>\n<figure id=\"attachment_46442\" aria-describedby=\"caption-attachment-46442\" style=\"width: 150px\" class=\"wp-caption alignright\"><a href=\"https:\/\/riskinfo.com.au\/news\/files\/2019\/09\/Sally-Loane-v2-e1569304980851.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-46442\" src=\"https:\/\/riskinfo.com.au\/news\/files\/2019\/09\/Sally-Loane-v2-e1569304980851.jpg\" alt=\"\" width=\"150\" height=\"180\" \/><\/a><figcaption id=\"caption-attachment-46442\" class=\"wp-caption-text\">Sally Loane&#8230;the\u00a0 industry is committed to developing new, more affordable types of IP cover&#8230;<\/figcaption><\/figure>\n<p>Meanwhile, the <a href=\"https:\/\/www.fsc.org.au\/\" target=\"_blank\" rel=\"noopener noreferrer\">FSC<\/a> 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.<\/p>\n<p>FSC CEO <strong>Sally Loane<\/strong> 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.<\/p>\n<p>She says this has exacerbated the recent increase in the incidence and duration of claims, including for mental health conditions.<\/p>\n<p>\u201cWe know there\u2019s a direct link between increasing claims costs and increasing premiums, which is why Australians have seen rising income protection premiums,\u201d Loane says.<\/p>\n<p>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.<\/p>\n<p>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 \u201cA\u2019s\u201d of Availability, Affordability and Assurance (that the life company will there when customer needs to claim).<\/p>\n","protected":false},"excerpt":{"rendered":"<p>APRA has announced that it is set to resume its intervention into the life insurance market &#8220;&#8230;to stem ongoing heavy losses in respect of individual disability income insurance&#8221;. In a letter to the life insurers, APRA has advised that from 1 October 2020, IDII providers will be subject to upfront capital penalties &#8220;&#8230;until APRA is [&hellip;]<\/p>\n","protected":false},"author":24,"featured_media":52483,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8,4],"tags":[],"class_list":["post-52342","post","type-post","status-publish","format-standard","has-post-thumbnail","category-compliance-regulation","category-products"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/52342","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/users\/24"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=52342"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/52342\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media\/52483"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=52342"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=52342"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=52342"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}