The Australian Prudential Regulation Authority (APRA) has furthered its intervention into the life insurance sector by addressing issues related to individual disability income insurance (IDII).
In December last year, APRA introduced a range of measures to address the flaws in IDII product design and pricing that it says have resulted in industry losses of around $3.4 billion over the past five years. However, it put the project on hold to allow insurers to focus on the COVID-19 pandemic.
Now, APRA insists that the issue cannot wait any longer. Therefore, starting today (October 01), IDII providers will be subject to upfront capital penalties until the regulator is assured they have taken adequate and timely steps to address sustainability concerns.
“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,” said APRA executive board member Geoff Summerhayes.
APRA now requires IDII providers to implement certain measures to manage riskier product features, including:
“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,” Summerhayes said.
