Advisers key to income protection changes

The financial advice sector has seen considerable change over the last few years, with many financial advisers regarding it as an existential crisis not of their making.

Increased regulation and education requirements have added considerable costs and complexity to advice businesses and led to a significant decline in the number of financial advisers. This has put increasing pressure on advisers, leading to advice gaps for less wealthy Australians. 

This has only been exacerbated by significant increases in income protection pricing, reducing the affordability of the products and increasingly limiting access to those clients who have greater capacity to cover increasing premiums. This is bad for the advice industry and it’s bad for consumer access to affordable income protection cover.

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The Australian Prudential Regulation Authority (APRA) acted to address this affordability and sustainability concern, creating the necessary ‘circuit-breaker’ to over-ride inherent market mechanisms which were deterring individual insurers from rationalising products, while both the Actuaries Institute and Financial Services Council (FSC) have also played a role in enabling meaningful change.

Accordingly, insurers undertook to re-design and re-engineer more affordable and sustainable products, an unprecedented industry-wide undertaking and a positive step towards ensuring better outcomes and more affordable cover for customers over the long-term. 

The role this plays in also preserving the ongoing viability of the financial advice sector can’t be underestimated, ensuring the important support, guidance and expertise offered by advisers remains accessible to more Australians, not simply those who can afford to pay higher prices.

However, more suitable and sustainable product solutions will only support the betterment of the financial advice sector if the life insurance industry also works closely to support advisers, enabling their vital role in this transition to new product constructs by helping clients identify and select the right levels of cover for themselves and their families.

It is insurers’ responsibility to design the right products, but it is financial advisers who will ensure that the products are being well understood by clients, and recognised for the sustainable, long-term value proposition that they are designed to provide.


We think the sustainability of products comes down to the basic principle of fairness. Fairness firstly for those on claim, through a product that meets their core need to replace a portion of income while on claim. And fairness also in terms of balancing that against what all Australians need and deserve from their income protection, even if they are fortunate in not needing to claim on that policy: affordable cover that’s with them for the long-term.

What we have seen in market over several years is not balance. A minority of customers who claim have received benefits that pay in excess of their need over the longer term. As a result, the majority of customers in the risk pool have seen their premiums continue to increase. 

Fairness for all those in the risk pool is achieved when products are designed to meet customer needs in a measured way so that it does not continually put upward pressure on affordability.


It is important that all stakeholders, including financial advisers, understand what really drives sustainability in income protection products.

To support and enable better product design and more sustainable outcomes, the Disability Insurance Taskforce of the Actuaries Institute (Taskforce) developed clear principles for the redesign of these individual disability income insurance (IDII) products in the reports, ‘Provisional Findings and Recommended Actions for Individual Disability Income Insurance' and 'Reference Product Individual Disability Income Insurance’. It also recommended that insurers strengthen their product governance by conducting sustainability assessments against the reference product. 

And while these products will continue to evolve over time, insurers have taken those first steps towards more long-term sustainable products, albeit with varying degrees of adherence to those sustainability principles and the taskforce reference product.

It is now essential that advisers grasp the opportunity to understand these new income protection products, in the interests of ensuring their clients are protected and their needs are met.  

With new products in market, it’s challenging to compare and too early to accurately predict the long-term price certainty of these products. So how can financial advisers compare and assess the sustainability of one product against another? One way for advisers to consider this is to learn from the taskforce’s approach to sustainability.

The taskforce identified that certain product features, more than others, have contributed to the unsustainable position the industry found itself in. In summary, the taskforce identified these product features as key drivers of sustainability likely to put upward pressure on pricing:

  • Income replacement ratios – the taskforce identified higher income replacement ratios had been a driver of high claims experience. TAL’s internal research following an in-depth review of past claims indicated 92% of claimants were back at work within two years of claim.
  • Products with higher replacement ratios over the long term may introduce sustainability risk and therefore pricing uncertainty;
  • Total disability definitions – to design for more sustainable outcomes, definitions should be clear and objective to support claimants when they have no capacity to work; 
  • Long-term controls – for loss minimisation are important when looking at long benefit periods. The taskforce included multiple design features in the reference product across disability definitions and income replacement ratios to manage sustainability risk of longer-term benefit periods. It is critical advisers understand the need to consider these long-term controls when comparing products, otherwise without strength of these controls, sustainability risk heightens;
  • Benefits that support return to work – partial disability benefits are common amongst income protection products in market, to help claimants on their journey back to the workforce. The taskforce highlighted the importance of these benefits in supporting the return to work, without the design incentivising the customer to remain on claim when they are well enough to work. 

These sustainability considerations, alongside existing product research practices, will help financial advisers identify how to assess the new range of income protection products. It’s critical that advisers consider whether their client really needs the many features and benefits of a given product versus the greater certainty on price in the long term which may be offered by another product.


Almost 90% of those surveyed agreed advisers need help to better understand insurance pooling, and the importance of considering the needs of those on claim, but also those in the risk pool paying premiums.

Life insurers have an important role to play in supporting financial advisers through education, including what to look out for in products if they are considering long-term affordability and fairness of products for their clients. 

The TAL Risk Academy is seeking to play a central role in this education journey for advisers by providing product-agnostic classes to help them navigate this transition.

An adviser’s best interests duty requires the advice they provide be likely to put the client in a better position. A key question advisers will naturally ask themselves, therefore, is what are the client’s objectives around risk management. 

Is the client cautious and safe, and wanting the product that gives them the greatest protection in any given situation? Or are they happy to accept a level of risk in their strategy, understanding that there will be circumstances where they may not have cover but perhaps a lower and more sustainable price? 

There has been a view over time that best interest equals best product, but ‘best’ is subjective to the author, and opinions can vary greatly from adviser to adviser, even when using similar research. In reality, ‘best interests’ focuses on the advice – does the advice meet the client’s objective, and from there it can be considered, does the product facilitate that advice?

Understanding the new products will mean advisers can better fulfill their role of meeting a client’s core need and providing better advice, while at the same time contributing to a more accessible financial advice sector for more Australians over the long-term.


Life insurance is a competitive industry, but our industry as a collective also needs to ensure that product design aligns within the clear parameters and guidelines that have now been set.  Otherwise, we risk the same problem occurring again. 

Advisers also have an important role to play here, by making sure their clients are aware of future pricing risks that come with products heavily laden with features and benefits that move away from their core need and the guidance issued by the taskforce.

Together, insurers and advisers should seek to ensure those customers in the risk pool who are fortunate enough not to ultimately claim can be confident that the product they are paying for supports long-term, affordable price stability; just as those who do ultimately claim should be confident that they will receive appropriate benefits that meet their needs and support them.

Constant price increases are good for no one – certainly not customers – and it will take a collective effort between insurers and the advice sector to ensure financial advice – and quality products – remain attainable for a larger portion of the community through these changes and the changes to come.  

Aaron Newman is general manager, individual life product at TAL.

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Talking about fairness, what are your plans for clients on pre APRA IP policies who took them out in good faith, have been paying premiums for years, but are now having their premiums go through the roof? They can't move due to health reasons. How do you plan on looking after them?

Here is some education from an experienced, qualified financial adviser:

Translation: When a life insurance company talks about 'sustainability', they mean tricky new policy conditions that reduce the chance of consumers accessing the cover when they need it, and higher premiums for the life insurance company so the executives can earn a fat bonus.

Ok TAL and the other remaining insurers, it’s sadly hilarious that after you all tried to totally screw advisers via reduced Comms and LIF, that now Advisers aren’t writing new business and Life Insurance companies are suffering.
Now this pathetic play to all work together, how important Advisers are etc. What ever.
TAL & rest of Life CO’s, there are 2 options for survival of your businesses:
1) increase Comms to 200%+ like OS experience has shown after such stupid LIF type interventions.
2) Publicly denounce LIF as a massive mistake and apologise for the trauma caused to good Advisers. Also promise to expose any serious Churners so the Life CO’s and ASIC can’t use this as a BS LIF excuse again.
Won’t make me write any Life Ins as too many Boomers to look after but good luck if you actually admit you screwed advisers over hoping for Dodgy Direct Life policies to rule but they didn’t last the RC and now you are stuffed.

Complexity and trickery in these policies has exploded dramatically increasing Advice risk. Commissions have dropped materially.

So we have higher risk for lower rewards and this wants to work together after sponsoring LIF???

He must think advisers are pure muppets.

I can easily assume what advisers think of him and his co conspirators.

I am fully FASEA qualified and have no intention of retiring any time soon. But I will stop offering insurance advice. Between the increased regulatory risks, increased product risks, and attacks on remuneration, it's just not worth it anymore.

The issue of FASEA forcing out "old riskies" is becoming a moot point. Personal insurance advice is no longer a sustainable business regardless of FASEA.

I am sick of saving business for the Insurance Companies who just decide over their morning tea to increase premiums ! Yet again! with the pretense of sustainability.
Only one month after the release of the new products AIA { COMMINSURE } and AMP have "hiked" the premiums on existing cover YET AGAIN. Clear view have announced their increase in January and no doubt the rest will follow. You don't need to be a genius to work out that they want to eventually "herd" everyone into the inferior
policies and at the very least force those with Age 65 or 70 cover back to a 2 or 5 year
And now we get the " how important our our advisers line" Yep they load the gun and expect us to fire the bullets and clean up the mess. And at our expense as each time we " save them" we get a renewal commission ?claw back" and reduce any ongoing remuneration. Its bad enough we have lost 40-50% in upfront earnings with most now unable to take on these smaller clients without it costing them again.
80/20 1 year responsibility would at least help. Not one offer of support ! Just a lot of blowing smoke up our [email protected]#*^ses

I am no longer part of the advice industry, However when my premium notice came through in August, it had become so unaffordable I let my policy lapse.
Changes now for many people are too late, hard decisions have been made already.

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