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ALUCA white paper sets out individual DII best practice approach

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The Australasian Life Underwriting and Claims Association (ALUCA) launched a white paper last week on individual disability income insurance (DII), outlining keys areas where improvements may be made amid an ongoing industry-wide push to return the troubled product line to a sustainable state.

An ALUCA working group developed the IDII Financial Underwriting and Claims Better Practices document after reviewing data from eight life insurers and reinsurers and holding 30 informal meetings with stakeholders.

The white paper is available for ALUCA members but a copy of it provided to shows it has identified five key areas where the biggest impact on individual DII sustainability can be achieved from a financial underwriting and claims perspective.

The five areas are income definitions and treatment; financial profiling, questioning and financial evidence collection; significant income calculation adjustments; what to consider financially should the industry consider a policy term expiry; and underwriting and claims solutions where there is a crossover between individual DII and personal total and permanent disability (TPD).

“It is important that the industry drives and adopts these recommended better practices to achieve industry sustainability,” ALUCA CEO Amanda McKernan said.

In relation to income definitions and treatment, the paper says better practices include clearly defined insurable income, ongoing business income and passive investment income.

Where there is a crossover between individual DII and total and permanent disability, there may be a consideration of a joint offering combining the two into one product.

“This working group would like to highlight that this combination IDII/personal TPD risk could be mitigated to some extent with an amendment to the TPD definition,” the white paper says.

“We believe it is important that TPD definitions be addressed by the industry to see the product provide cover as it is priced and intended.”

The paper says recommendation regarding TPD definition is out of scope for this project.