APRA warns of action on disability income cover
The Australian Prudential Regulation Authority (APRA) says it will step up supervision of disability income insurance if progress on improving the product’s performance is inadequate.
The regulator is mid-way through a review of disability income insurance – also known as income protection insurance – offered outside superannuation. It says it may ultimately consider such responses as imposing specific capital requirements.
“Notwithstanding the somewhat improved performance since 2015, APRA remains concerned about the commercial sustainability of this product in its current form,” it says.
APRA launched the first phase of the review last year, focusing on life reinsurers. Inquiries have included a roundtable discussion followed by on-site meetings.
The second phase involving primary writers will include a targeted review of portfolios for disability income insurance.
Reinsurers have told APRA that current disability income insurance products are substantially under-priced relative to the benefits they offer.
Suggested changes include simplification of products, tighter definitions to more closely specify claims eligibility, benefits that promote return to work and appropriate pricing.
“A product that is beneficial for policyholders, insurers and reinsurers will avoid market disruption caused by significant pricing increases or reductions in cover by insurers and reinsurers,” APRA says.
The first phase of the regulator’s review found disability income insurance is often regarded as a “loss leader” that is subsidised by other lines of business such as lump sum death and total permanent disability insurance.