AFA News 16 September 2020. In December last year, APRA announced plans to intervene in the Income Protection market. They consulted on the detail of these changes, however, the removal of agreed value was not negotiable and came into effect from 1 April 2020. As part of our joint AFA/FPA Life Insurance Taskforce, we initiated discussions with APRA and ASIC jointly on the implications of these reforms. We also made a submission to APRA in early March.
We are now expecting APRA to announce the finalised detailed changes within the next few weeks, and therefore felt it appropriate to remind members of the key points of the consultation and the recommendations that our joint taskforce made. The key considerations are as follows:
- Pre-disability income should not be assessed on the last 12 months. Ideally this should be the best 12 months over the last three years. The events of the last 12 months, including the drought, the bushfires and the COVID-19 crisis, have clearly demonstrated that a simple measure of the last 12 months is inappropriate and particularly unfair for small business operators.
- We have also asked APRA to carefully consider the proposed five year limit on terms and conditions to ensure that changes in this area do not inappropriately remove the promise of some future certainty for life insurance clients. We have recommended that APRA consider other options for making the Income Protection market more sustainable.
In this submission, we also set out our concerns regarding the likely impact on existing Income Protection clients, who will be left in legacy products and as a result exposed to a greater risk of significant ongoing premium increases. This is an issue that is already having a broad impact, with a number of large Income Protection premium increases already announced.
We also sought to highlight the increased complexity involved in providing financial advice on income protection, in an increasingly uncertain environment, and believe that increased guidance will be required.
We recognise we are at a crossroads in terms of the future of income protection. There needs to be a balance between the interests of existing policyholders, who have entered contracts in good faith, with the broader interests of achieving a sustainable and competitive market going forward.
We will be addressing this issue and many others in our Life Insurer CEO Panel, in our Vision 2020 Conference, being held on 14 October 2020.
With further announcements expected shortly, we want to remind members of the position that we have taken and the issues involved in this major reform.
Please provide any feedback to firstname.lastname@example.org.
Issued 16.09.2020. AFA Policy & Education Update