Actuaries urge for disability insurance reforms

Around 850,000 disability income insurance policies are currently on issue, according to the body, but the taskforce has said the market is at risk of failure.

A lack of affordability and accessibility as well as growing product complexity all weigh on the sector, with it becoming more difficult for customers to understand and be satisfied with claims outcomes, a new report from the actuary body has ruled.

The Actuaries Institute has said products need to provide more certain outcomes, be more easily understood by consumers and have products and prices more suited to their needs.

The recommendations from the taskforce have also included an APRA and Treasury review of the law around the 1995 Life Insurance Act, to test whether it remains fit for purpose, as the industry sees a rise in mental health claims.

The taskforce has suggested sustainability heat maps and a review of board composition to ensure risks are understood and managed.

Actuaries Institute president and taskforce member Hoa Bui commented, “The lack of the sustainability of the disability insurance market is one of the most pressing issues for life insurers today.

“We’ve looked at the issues through a consumer lens to find a way forward for all parties.”

Taskforce convenor Ian Laughlin stated without reforms, cover will become unaffordable for many and life insurers selling policies will suffer large losses.

“This is neither in the interests of customers nor the community at large,” Mr Laughlin said.

The Actuaries Institute taskforce report has involved input from about 40 odd actuaries, discussions with ASIC and APRA, Treasury, chief executives, boards, lawyers, consumer advocates, claims and underwriting professionals, doctors and advisers.

It has followed a KPMG research paper that found life companies lost $3.4 billion over five years by selling complex products to individuals, ultimately threatening the viability of the sector.

The taskforce is aiming for more stable prices over time, sustainable outcomes for insurers, as well as a closer alignment with consumer interests in product features, underwriting and claims practices.

But if it fails, it fears there could be a loss in productivity across communities, a rise in demand for community and family support, increased social security costs and decline in mental health and self-worth.

Other recommendations for insurers included gaining better insights into customer claims experience, simpler and cheaper products with a focus on return to health and work, strong controls over the levels of benefits paid and creating products that will adapt to advances in medicine, technology and society’s expectations.

Further, it has called for standardised collection of medical information and better underwriting and claims data.

Mr Laughlin said “the taskforce strongly believes that the problems are more deep-seated and diverse” than just product terms and conditions, adding there was too much capital invested in a market with a relatively small base.

Boards may not receive the right analysis to allow directors to understand the extent of long-term guarantees and risks.

Mr Laughlin also commented that loss minimisation, a feature of many insurance contracts, is not explicitly expressed in disability income insurance contracts.