Addressing the recent AIOFP virtual conference, MetLife head of advice strategy Jeffrey Scott said changes introduced earlier this year to restrict the sale of agreed value policies were just the beginning of a significant overhaul of the income protection insurance sector that Mr Scott likened to “using a sledgehammer to crack open a walnut”.
“With regards to the proposals to be implemented on 1 January [2021], life companies are now going to be required to review their premiums every 18 months based on industry claims statistics,” Mr Scott said.
“We have seen volatility with most IP policies in the past three to five years, so expect that to continue going forward. These first proposals that APRA had were interesting, but the next eight that are proposed to come in on 1 July 2021 are the ones that scare me the most.”
Mr Scott said the further rules proposed to come into effect from 1 July 2021 would involve “stripping away” significant IP benefits including assessing an insured person’s income over the previous 36 months before their claim, and including the full extent of an insured person’s income in any assessment.
“Under these proposals, the maximum benefit you can receive is capped at 100 per cent of your pre-disability income – that includes your sick leave, your rental income, that will all be included as offsets to your income,” he said.
“Most of the good income protection policies don’t offset sick leave or long service leave, whereas these policies will automatically do this. And if you go on claim for more than six months, the maximum benefit will automatically reduce to 75 per cent.
“So we have these situations where for new policies issued after 1 July 2021, it will strip away benefits we’ve become accustomed to since these policies were introduced back in 1965.”
Other policy benefits proposed to be removed by the new APRA rules included own-occupation rather than any-occupation definitions, and additional trauma benefits paid out on IP policies, Mr Scott said.
He urged risk advisers to take action through their industry bodies and make direct submissions to the regulator pointing to the impact of such changes to clients’ financial stability.
“The first thing you can do is talk to your industry body and encourage them to lobby APRA, and the second thing is talk to APRA yourself – provide a submission, make sure they understand what the impacts are on your clients, that when they need the cover the most, they are going to have that cover,” Mr Scott said.
“Talk to your local member, because if clients can’t get adequate income protection insurance, they become a drain on society. Make sure you are active in this, otherwise the new policies you can offer to a client will have far fewer benefits in there to help the clients out.”
Life companies, government, FPA, AFA, industry ‘consultants’ et al hit the poor adviser over the head until he bleeds about CLIENT BEST INTEREST. Please tell me, how on God’s blue and green earth do all the premium rises, bad product design, bad govt oversight ets over the past decade come close to the best interest of the client. the adviser has caused NONE of these problems BUT the adviser is the only one jumped on from a great height to ensure he acts within this holy grail of ‘client best interest’. 99% of advisers have only EVER operated under ‘client best interest’ but the 1% that have not have been used to vilify the rest of us and literally ruin our once great industry.The whole system is skewed against advisers to take the blame for the sins of all of the other entities and it is as corrupt as it comes. Any wonder I’m using FARCE-IA’s pointless exam as the reason I’m retiring early in Dec’21? Charges should be laid against these fools as the adviser exodus will increase the underinsurance problem and families will be exposed to dangerous and unnecessary risk. Just reprehensible beyond words what these industry entities have done and continue to do.
What have AFA and FPA done for us other than “Yes Sir” , “As you say Sir”. Our industry bodies do nothing for us. They can’t even work out a way to agree with each other. How can we expect them to team up and stand up for us as an industry. They are here for their own vested interests.
Give it a rest.
Looks like everything will end up looking like some glorified group insurance with 18 month reviews?
…and there are class actions saying some products were too expensive a few years ago…go figure?
So the governments hand into the insurance industry will result in stripped back policies, and as a result mean more people being denied claims and more complaints. Next the government (ASIC & APRA) will be complaining about the number of disputes in AFCA and the poor claims rates. Seriously, how do these people get into government?
Do you think it would be a grand idea to increase the insurance pool by incentivising advisers (via commissions and less red-tape) to write policies for regular people!! Get the industry back on its feet. Use the UK as an example.
It’s almost like the adviser’s job shouldn’t be to “sell” insurance products.
APRA doing things?? Not acceptable we need to put names to the faceless men.
I won’t be lobbying anyone- Just wont write any risk at all. ZERO NADA KAPUT. Why would anyone waste their time recommending such worthless policies and further, why would anyone waste their money buying them?
I’m with you this is beyond a joke so why bother wasting any time convincing punters to apply for average IP insurance?
VERY sadly I find i must agree with you. i don’t want to but I must. I haven’t written new business for years now. I look after my clients as best I can and will write new IF it is absolutely necessary but for existing clients only and I do NOT look for new business at all and weill turn new clients away. This is ridiculous and not the way we should or should want to work but, added to reduced commissions, this idiot compliance regime is just too prohibitive and costly. I’m out Dec’21 – thanks to FARCE-IA and their pointless exam and can’t wait.
This is one of the key reasons why insurance companies like AMP and fund managers like MLC should not own adviser dealer groups. Advisers will select the insurer that offers value and this will keep pricing as fair as it can be without sending the insurer in to the red. The general insurance industry works very well in doing this, now it is time for the life sector to separate the 2 and people pay for advice and access to best offerings.
Not quite true. Some of the older GI insurers have “strategic” shareholdings in large brokerage firms. Makes good business since. Keep it below 20% and no one asks questions
This is an attempt to strip everything off insurance policies that make them superior to industry fund policies. In other words, it makes it harder and harder to sell such policies for advisers as the difference is getting smaller and smaller. Quite an effective way to destroy the industry. I wonder why, though? We already have such stripped-down policies and they are readily available, why the desire to make insurance into a Soviet-style offering where the government dictates what the consumer can have?
Why ? Because they’re simply not sustainable in their current format.
To elaborate on why?
1: Insurance companies have written off billions on DI products in the last few years. APRA report this. This is even after allowing for all the huge price increases we have seen
2: Products that are generous and pay anywhere close to 100% of a persons income essentially encourage people to stay off work. This is bad for the person on claim (health benefits of work are widely accepted now), bad for all the other policyholders who have to pay higher premiums as a result, bad for the community who lose the contribution of people who could otherwise be contributing.
A system where a policyholder can get a benefit greater than their income if hugely flawed.
This is a good point and quite accurate. However, it is hugely exacerbated by the LIF changes leading to a collapse in new policies being written and the existing books of insurers getting older and the better risks leaving with the price increases.
Yes, massively increasing claims is a big problem. Demotivating your intermediaries (LIF) and the consequences of swingeing price rises add to it.
Its the reds! We thought we vanquished them back in ’89, but no, they have just been patiently biding their time, waiting to renew their attack on the foundations of western culture. And through IP insurance no less! Well no point resisting such a fiendishly clever plan – i for one welcome our new soviet overlords and my new job in the state owned shoe factory. Size 7.5 for everyone!