Actuaries support life insurers remaining under APRA scrutiny

Disability Income Insurance has been the biggest drag on the balance sheets of Australia’s major life insurance companies and the Actuaries Institute is now supporting the Australian Prudential Regulation Authority (APRA) maintaining its intervention in the area.

Releasing the findings of the Actuaries Institute Disability Insurance Taskforce, the institute has backed the continued regulatory intervention “until such time as the industry demonstrates a sustained improvement in practices and outcomes”.

However, among the recommendations of the taskforce is the use of a reference product by insurers to aid in “balancing innovation and clarity with respect to definitions” and a deferral of the proposed standardisation of insurance policy definitions for at least two years to allow a review of those definitions.

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The report also argues that the Australian Securities and Investments Commission (ASIC) should produce examples of application of best interests duty (BID), “including the trade-off of features and price, for IDII (and other life insurance) and include this in RG 175”.

“This should include consideration of customers moving from legacy to new IDII products. Pending ASIC provision of examples in RG 175, the Actuaries Institute, Financial Services Council (FSC) and the Financial Planning Association (FPA)/ Association of Financial Advisers (AFA) should produce examples of application of BID for IDII (and other life insurance),” it said.

The chair of the Actuaries Institute Taskforce, former APRA deputy chair, Ian Laughlin stated simply that the disability income insurance ecosystem was not healthy.

Indeed, the introduction to the final report of the Taskforce suggested that without intervention the market was at risk of failure.

Where financial advice is concerned, the report recommends key amendments to the products ratings process with ratings houses working with licensees to ensure the products achieve what they are meant to achieve in the long-term interests of the customers.

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Yes ASIC should provide guidance on how downgrading a clients IP policy is in their best interests. If this is to be the norm I would be more concerned about AFCA rulings too, because in their eyes the clients can have their cake and eat it too. I imagine they would get stuck into the adviser if the replaced policy were able to be claimed on compared to the new (lessor quality) policy, despite all the disclosure from the adviser.

And of course, conversely if we didn't move them to a cheaper product despite their existing product providing better protection we could be on the hook for that too. Fun times.

My concern is for those clients who took out DI products and have suffered from ill health. This means they wont be able to apply for new cover because the UW terms will be less favorable. At the same time they get stuck in a legacy product with regular premium rate increases... What is a reasonable amount to increase back-book premiums by? At what point does it become an unacceptable practice? It would be reassuring to know if there is a spotlight on backbook premium increases. Perhaps a ceiling of 75% of the original base premium rates could/should be set? Otherwise, clients will be unfairly forced out of there existing products....

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