APRA gives leeway to insurers on income protection

APRA said it had issued a letter to life insurers informing them of an “updated position" on the IDII changes, which meant that its policy term contract measure would now not come into effect until 1 October 2022.

The measure, part of a raft of restrictions to the product design of income protection policies following dramatic losses for insurers in the IDII product segment, would see a five-year maximum policy term imposed on new income protection products.

“APRA, along with ASIC, has been actively engaging with the FSC and other industry stakeholders on the implementation of the policy contract term measure,” the regulator said.

“It has become clear that the industry is unlikely to be able to develop viable solutions for implementing the measure by APRA’s previously communicated deadline of 1 October 2021. APRA is aware that life companies have considered various options, but to date have not settled on solutions that satisfy both the legal and operational constraints and without unintended adverse consequences for consumers.”

APRA said it acknowledged “the challenges associated with implementing the policy contract term measure” but viewed it as “an important mechanism to manage the risks associated with long contract terms”.

“Without the policy contract term measure, it is unlikely there will be a change to the current practice that effectively locks in terms and conditions for extended periods of time, leaving premium changes as the primary (or only) lever to deal with the impact of external changes on IDII sustainability,” the regulator said.

With an extended deadline now in place, APRA said it expected insurers to “intensify their efforts to explore and develop workable solutions to meet the intention of APRA’s policy contract term measure and to proactively keep APRA informed of progress”.

“It is important to note that all of APRA’s other IDII product measures will still take effect on 1 October 2021,” APRA said.