The individual disability income insurance (DII) line may again be in “jeopardy” amid signs that providers are prioritising sales over product sustainability, Australian Prudential Regulation Authority (APRA) Deputy Chair Helen Rowell warns.

Ms Rowell says the prudential regulator is seeing some past poor market practices – such as more generous product features – resurfacing, placing the recovery of the individual DII market at risk.

She says the prudential regulator will take action if the trend persists.

“APRA is committed to promoting the sustainability of life insurance products, including individual DII, for the long-term benefit of policyholders,” Ms Rowell said in a speech at the Risk Australia conference in Sydney.

“We will not shy away from taking decisive and strong actions if required, including potential increases to supervisory capital adjustments when we see imprudent or reckless practice.”

APRA data released last month shows the individual DII market made more than $1 billion in net profit for the year to June 30, after losing $343.5 million in the prior 12-month period. The earnings recovery is a significant improvement as well from the $723.2 million profit posted in the year to March.

The earnings rebound comes after APRA took action a few years ago to force the industry to improve individual DII pricing and design as well as risk governance.

“Things started to look more promising and, by the end of 2021, a swathe of new and more sustainable individual DII products had hit the market,” Ms Rowell said.

“Sadly, however, it appears the positive momentum may have been short-lived.”

She says the prudential regulator is also seeing “worrying” signs of similar trends and practices in other classes of life insurance, such as the group insurance market.

“It would appear that risk functions are not having the desired impact in many life insurers, resulting in a lack of long-term management of the end-to-end risk cycle of life insurance products,” Ms Rowell said.

“And boards may not be taking a sufficiently holistic and long-term view when assessing risks and outcomes.

“However, our firm expectation is that boards will take the lead on driving real and sustainable change in this market.

“It is also important that insurers take steps to influence other market participants, such as advisers and rating houses, to also focus more on long-term product sustainability.