The regulator issued a clear directive to life companies this month: provide proof you’ve changed the way you offer disability income insurance or be prepared to face sanctions.
In an open letter to life insurers and friendly societies, the Australian Prudential Regulation Authority (APRA) set out a number of measures aimed at shoring up the sustainability of the product.
As CoreData wrote recently, the sector made a $1.1 billion loss on individual disability income insurance (income protection) in the year to June 30, 2019.
APRA had previously signalled its intention to act, when it released a letter in May this year outlining expectations for improvement in a number of areas relating to pricing and product design.
In its latest correspondence, APRA outlined three key measures:
- Consequence management – An upfront Pillar 2 capital charge that will take effect on 31 March 2020 and remain in place until life companies demonstrate sufficient and sustained progress against APRA’s expectations
- Managing riskier product features – the removal of agreed-value contracts and a maximum duration on new policies of five years (from July 2021)
- Data – contributing to APRA’s data collection on individual disability income protection and industry experience studies
Interventions are not uncommon in the financial services industry. In recent years, we’ve seen the Financial Adviser Standards and Ethics Authority (FASEA) impose new education standards on advisers; licensees made to rethink vertical integration post-Royal Commission, and super funds forced to cancel default insurance on low balance accounts from April 2020.
But with a stick approach, there are always unintended consequences.
This article originally appeared at www riskinfo.com.au – click the image below to read the full version