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10 February 2020
The Actuaries Institute expects to outline by September a range of critical reform proposals to save the loss-making $5 billion disability income insurance (DII) market.
Nearly 50 actuaries who are part of the institute’s Disability Insurance Taskforce have been working since September to find ways to address the sector’s raft of problems.
It will be a “top down and bottom up” approach, the taskforce’s convenor Ian Laughlin told insuranceNEWS.com.au today.
“[The taskforce] started last September,” he told insuranceNEWS.com.au. “We have already done a lot of work and it will probably take a year to finish.”
The Australian Prudential Regulation Authority (APRA) is an observer on the taskforce, and there are plans to also engage the Australian Securities and Investments Commission (ASIC).
“Our intention is to engage with a whole range of different participants in the industry to understand their perspectives, get their views so that we can identify where the issues are across the industry and make proposals for change,” Mr Laughlin said.
The institute announced today that research commissioned from KPMG has found the $5 billion sector has the “potential for market failure” if nothing changes.
The research says competitive pressure has resulted in products that are complex and expensive to administer, and premiums have increased sharply, perpetuating potential anti-selective lapses leading to worse claims experiences and falling profit margins.
APRA has already imposed penalties on life insurers to force them to remedy the situation, and has warned more action will be taken if there is no improvement in the pricing and sustainability of individual DII products.
“Our taskforce is focused initially on individual disability income insurance,” Mr Laughlin told insuranceNEWS.com.au. “That’s our focus at the moment, but a lot of what we do will be relevant for other life insurance.
“A market failure means customers won’t be able to get the cover they need at a price they can afford. We want to make sure that the industry can provide cover that meets customers’ needs at an affordable price and a stable price.
“We decided that we, the actuarial profession, are in a unique position because we sit in the middle of the industry, so we can provide an objective analysis.”