Home / Life Insurance / Actuaries present proposals to save DII market
28 September 2020
The Actuaries Institute has published for consultation a report proposing sweeping reforms for the ailing retail disability income insurance (DII) market.
The report comes a year after the institute began looking into ways to solve the loss-making sector’s problems.
A key recommendation by the institute’s Disability Insurance Taskforce is a review of the Life Insurance Act to see if it is still fit for purpose.
“Our recommendations are aimed at saving the market from failure,” Taskforce Convenor Ian Laughlin told insuranceNEWS.com.au. What we want to do is have all these changes made so you end up with a sustainable business and good products for the long term.
“The message for everyone is to understand the big picture.”
The report says insurers should develop simpler and cheaper products with a focus on return to health and work. They should also gain better insights into customer claims experience, impose strong controls on levels of benefits and income replacement and embed loss minimisation principles in policy contracts.
The institute says the retail DII market in its current state “is at risk of failure” unless every stakeholder including regulators, insurers, Treasury, advisers and company boards agree to work together to support the recommendations.
Mr Laughlin says the report has not taken into account the likely negative impact of COVID-19 but believes “it could well make things worse”.
About 850,000 DII policies are on issue. A KPMG report commissioned by the institute found life companies lost $3.4 billion over five years selling complex products, ultimately threatening the viability of the sector.
The Taskforce report says the Australian retail DII market offers a “smorgasbord” of product features, typically resulting in difficult-to-understand covers for customers.
Under-pricing has also harmed the market, with policyholders subsequently paying in later years through multiple increases in DII premium rates.
“These increases have been steep, unanticipated and frequent which has undermined the value of this product for customers,” the report says.
Insurers have also underestimated the impact of changes to product features and underwriting standards, particularly their cumulative effect over a period of years.
“And they have not properly understood or managed the uncertainty in claims flowing from the changes to attitudes and norms in society,” the report says. “This has been compounded by the inability under the Life Insurance Act of insurers to modify product terms and conditions after policies are issued.”
Consultation closes on October 31.
Click here for more details.