Measures aimed at turning around the loss-making income protection (IP) insurance product line commenced this month, with the industry backing the moves imposed by the Australian Prudential Regulation Authority (APRA).

MLC Life Insurance GM of Retail Distribution and Partnerships Michael Downey says the changes mark “a new beginning for advisers and clients”.

“Customers still want income protection products, but at a reasonable and sustainable price,” Mr Downey said.

“For customers, our challenge to design, price, and manage fit for purpose products resulted in significant and frequent (industry-wide) premium increases over the last few years - more than what they would have expected at the commencement of their contracts.

“It is a challenge we as an industry must confront head on to ensure there is a future for income protection in Australia.”

APRA finalised the sustainability measures last year, giving the industry one year to prepare for the implementation of income at risk and income replacement ratio measures. It however extended the third measure, policy contract term, to October 1 next year.

The measures are designed to improve the financial stability of the IP product line, which has lost billions in the last few years.

Head of Life Insurance Sales and Service at comparator Compare Club Dale Coombes says in the long run, the measures should help ensure that IP products can continue to be offered to Australians.

“The changes are primarily being implemented by APRA to remove the incentive for people to go on extended claims unnecessarily and return to work sooner,” he told insuranceNEWS.com.au.

“It’s definitely a step in the right direction given the challenges income protection has faced in recent years.”

He says the cost of IP for customers, particularly existing policyholders, has been rising to balance the inflated cost of claims that the insurers are experiencing.

“It’s understandable that both insurers and consumers have been asking questions around value for money,” Mr Coombes said.

“But from what we’ve seen at Compare Club, Australians still have a strong desire to protect their income, which for most, is their biggest financial asset.

“Yes, the APRA changes may give a little less back but in the long term it will hopefully mean a more sustainable product, which in turn will lead to more affordable pricing for consumers.”