In an open letter to all life insurers and friendly societies, the Australian Prudential Regulatory Authority (APRA) has expressed its concerns about the industry’s failure to design and price sustainable income protection policies.
In addition to being concerned by the financial losses experienced by insurers in recent years, APRA felt that “product design and pricing decisions may be contrary to the long-term interests of policyholders.”
The regulator had conducted a review of the eight largest providers of individual income protection policies – AIA Australia, AMP Life, Colonial Mutual Life Assurance Society, MLC, OnePath Life, Suncorp Life & Superannuation, TAL Life and Westpac Life insurance. Together these companies comprised 91.5% of this market based on gross policy revenue as at 31st December 2018.
Shortcomings in income protection products
While APRA said it had observed that these companies had recognized the issues and risks associated with income protection products and begun to address them, it found shortcomings in their:
- Strategy and risk governance
- Pricing and product design
In its letter APRA put insurers on notice that it expected them to comply with specific actions within set timeframes. Failure to adequately respond could mean that “APRA will increase its supervisory intensity of that life company and may impose an entity-specific capital charge.”
APRA expects insurance companies to “place more emphasis on providing policyholders with greater certainty about the expected future premiums.” Sustainability of income protection premiums has become a major issue in recent years, with many policyholders hit with steep stepped and level premium increases.
If you have experienced rising income protection premiums and want to find out if your policy is priced competitively go to Compare Quotes. When comparing premiums it is important to use the same waiting period and benefit period as your current policy, as these parameters can have a large impact on income protection premiums.