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.<\/p>\n
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<\/strong>, sets out the background and rationale for introducing maximum terms for IDII contracts.<\/p>\n 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.<\/p>\n It is therefore disappointing that the industry appears not to have engaged with this opportunity as fully and openly as expected…<\/p><\/blockquote>\n 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.”<\/p>\n 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 \u2013 APRA<\/a>).<\/p>\n 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.<\/p>\n APRA’s Expectations<\/strong><\/p>\n 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:<\/p>\n “This includes collecting information on changes to policyholder\u2019s 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.<\/p>\n During the period of suspension, APRA states it also expects life companies to:<\/p>\n\n