Gross new business premiums for new individual disability income insurance (IDII) products will be 15% lower than current products after the prudential regulator’s intervention, according to projections from DEXX&R.
DEXX&R’s latest market projections report on the effects of the Australian Prudential Regulation Authority (APRA) product design intervention said the 15% decrease included allowances for:
- A maximum monthly benefit of $30,000 eliminating premium inflow that was currently sourced from policies with higher monthly sums insured; and
- Lower premiums applicable to these new generation products.
“Given the current adverse claims experience for life insurers for current policies it is expected that premiums for in-force business will increase by 10% to 15% over the 18 months,” it said.
“Reducing the maximum monthly benefit to $30,000 per month could reduce new premiums received by life companies that cater for monthly benefits over $30,000 by an estimated 5%.
“Financial planners have a range of options that could be considered in the context of their obligation to take “best interest” into account when advising client’s with existing policies who are unable to accommodate the inevitable premium increases for existing policies. For example reducing the benefit period from to age 65 down to five years will provide lower premiums at the same time preserving existing more generous own occupation definition for the entire benefit period and an agreed value benefit where applicable.
“Given the significant gap between benefit applicable under current policies and those available from 1 October, 2021, we expect that discontinuances will continue to fall for existing business and when coupled with across the board premium increases that the increase in premium on in-force business will over the short to medium term offset the anticipated lower new premium inflows.”
DEXX&R projected that disability income in-force premiums would increase to $7 billion by December 2030 at an annual growth rate of 2.1%. However, this rate was significantly lower than the projected 3.6% growth rate as of December 2018.
Term life and trauma in-force premiums were set to increase to $14.7 billion by December 2030 at an average annual growth rate of 1.1%, from $13.2 billion at December 2020.
This lower growth rate would be a result of the reduced number of life companies promoting risk products following the exit of AMP and retail banks, and distribution disruption following the change in ownership of several large bank owned dealer groups.
Group in-force premiums were set to increase to $11.8 billion by December 2030. Total group lump sum in-force was projected to increase by an average annual growth rate of 5.4% to $8.3 billion at December 2030 from $4.9 billion at December 2020.
Group salary continuance in-force was projected to increase by an average annual growth rate of 4.9% to $3.5 billion at December 2030 from $2.2 billion at December 2020.
“With APRA measures negatively impacting benefits offered by individual disability income products the value gap between the basic cover offered inside superannuation by group salary continuance policies and the significantly more generous benefits available from individual disability income products inside to super to reduce making basic salary continuance benefits available from a member’s super fund more attractive,” DEXX&R said.
APRA measures that took effect from 1 July, 2021 were that the maximum benefit was limited to $30,000 per month, and restricted definitions and monthly benefit to applied for claim periods longer than two years.