The Actuaries Institute’s proposed measures to turn around the ailing disability income insurance (DII) market have the backing of key stakeholders, the Financial Services Council (FSC) and major life insurer AIA.

AIA has called the institute’s recommendations for loss-making retail DII products “important and necessary” while FSC says the industry will consider proposals made by the institute.

The Actuaries Institute outlined its suggestions last week in a report, warning the retail DII market in its present state “is at risk of failure” unless the industry and other stakeholders such as regulators and Treasury work together to support the proposed reforms.

A key recommendation is a review of the Life Insurance Act to see if it is still fit for purpose.

Insurers should develop simpler and cheaper products with a focus on return to health and work, the report says. They should also gain better insights into customer claims experience, impose strong controls on levels of benefits and income replacement and embed loss minimisation principles in policy contracts.

FSC CEO Sally Loane says the life industry is focused on addressing the issues facing the DII market.

“We know there’s a direct link between increasing claims costs and increasing premiums, which is why Australians have seen rising income protection premiums,” Ms Loane said. “To address this, the life insurance industry is committed to developing new, more affordable types of income protection cover to give Australians more choice.”

She says next year will see the launch of a “new generation” of DII covers that will ensure sustained premium affordability.

AIA CEO Damien Mu says the insurer is working to roll out improved DII products in the coming months.

“There is a clear need for simpler products that continue to meet customer needs and deliver value,” Mr Mu said. “A new generation of products will deliver availability, affordability and assurance.”

The FSC and AIA have also voiced support for the new actions taken by the Australian Prudential Regulation Authority (APRA) to turn around the DII market.

APRA resumed its capital intervention measures and also outlined the moves it expects DII providers to implement.