The Australian Prudential Regulation Authority (APRA) has announced it would resume its intervention into the life insurance market as the COVID-19 pandemic has exacerbated the problems with individual disability income insurance (IDII).
APRA today said from 1 October, 2020, IDII providers would be subject to upfront capital penalties until APRA was assured they had taken adequate and timely steps to address sustainability concerns.
The authority said measures it would require to better manage riskier product features included:
- Ensuring IDII benefits do not exceed the policyholder’s income at the time of claim, and cease the sale of Agreed Value policies;
- Avoiding offering IDII policies with fixed terms and conditions of more than five years; and
- Ensuring effective controls are in place to manage the risks associated with longer benefit periods.
APRA said it had also asked life companies to consider and apply these principles to other insurance products.
APRA executive board member, Geoff Summerhayes, said: “IDII plays a valuable role in providing replacement income to policyholders when they are unable to work due to illness or injury. APRA wants to ensure it remains available to Australians who need it, but that won’t happen if life companies continue to haemorrhage money through the sale of IDII.
“Our assessment is that the pandemic may further exacerbate the problems with this product, so decisive action can no longer be delayed. APRA has delivered a framework and financial incentives to fix this complex issue; it’s now up to life companies to rise to the challenge of restoring IDII to a sustainable footing.”
In December, 2019, APRA said its intervention would stem the “ongoing heavy losses” in IDII, address flaws in its product design, and pricing that had seen the industry lose around $3.4 billion over the past five years. However, the program was put on hold to enable life companies to focus on responding to the pandemic.