Australian Prudential Regulation Authority (APRA) reported that the Australian income protection industry has lost $3 billion in the last 5 years, with more than $1 billion lost in the last the 12 months.
The primary reason for the loss is due a large increase in mental illness claims.
With this concerning trend, APRA actively encouraged the life insurance industry to develop possible solutions to assist with sustainability. This included APRA proposing ten measures in December 2019 that intended to make income protection more viable for current and future generations.
The proposed changes are designed to make income protection more sustainable as a product, these changes are however less beneficial for the person insured compared with existing policies today. If you get insurance now, before 19th of October, you won’t be subjected to the new less beneficial rules.
Below are the 10 changes that must be implemented by October 2021.
- Insurance companies will be expected to stop issuing any new agreed value or endorsed agreed value policies.
- Premium pricing must factor in industry experience studies that are no less than 18 months old.
- Benefits will be based upon the life insured’s income over the preceding 12 months.
- Insurance benefits, and other earned income, will not exceed 100 per cent of the life insured’s income for the first six months of benefit payments.
- Insurance benefits, and other earned income, will not exceed 75 per cent of the life insured’s income for benefit payments that are longer than six months.
- Maximum benefit payment of $30,000 per month.
- Policy term of the contract shall not exceed five years.
- After the initial five years, the policy may be renewed without medical underwriting, but both income and occupation will need to be reviewed and confirmed.
- After the initial five years, the terms and conditions issued on the new policy must be based on the policy on issue at the time of renewal.
- Have effective controls in place to manage the risks associated with long benefit periods (e.g. having a stricter disability definition for long benefit periods).
Now is the time to review your insurances before so that you can take advantage of the more favourable rules before these changes come into full affect.
If you’d like to discuss this further, please contact Dean Benfell 07 5451 0022.
“Got any questions the FAA Team are here to help!”