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Disability income insurance has highest claims paid ratio: APRA data

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The prudential regulator has again expressed concerns about disability income insurance (DII) products, following the release of its latest claims and disputes data for the rolling 12-month period to June 30.

DII business has the highest claims paid ratio for all distribution channels, ranging from 57% to 121%, the Australian Prudential Regulation Authority (APRA) said.

APRA says the figures imply that the “all-in costs of the products exceed premiums paid.”

Individual-advised DII products have a 57% claims paid ratio, individual non-advised 107%, group super 111% and group ordinary 121%.

“While a ratio of over 100% suggests good value for policyholders, this is not sustainable and will threaten the ongoing availability of [individual] DII for the Australia community in the future,” APRA said.

“APRA is working with the industry to move the product to a sustainable state and thereby deliver better outcomes for policyholders, including through the release of sustainability measures outlining APRA’s expectations and the ongoing review of life companies’ progress in meeting them.”

Data released in August by APRA shows individual DII lost $345.5 million in the year to June 30 and group DII $5.9 million.

APRA has already introduced capital measures in the form of upfront penalties for providers who fail to improve the sustainability of DII products.

This month also saw the commencement of two other measures - income at risk and income replacement ratio measures.

The APRA data released last week is based on key industry-level claims and dispute outcomes for 20 Australian life insurers writing direct business.

The overall claims admittance rate for DII and six other cover types across the four distribution channels is 93%.

Death, total and permanent disability, trauma, consumer credit insurance, funeral and accident are the other five products covered by the APRA statistics.

DII products sold through advisers have a 95% claims admittance rate, compared with 89% for non-advised sales. DII policies acquired via group super have a 95% admittance rate and group ordinary 94%.

Click here for the APRA data.