In late March, The Australian Prudential Regulation Authority (APRA) sent a letter to insurers and friendly societies announcing their decision to suspend the implementation of the policy contract terms measure for individual disability income insurance (IDII).
Initially scheduled to be implemented from 1 October 2022, the decision has been made to suspend the measure for at least two years. The intention is to allow more time to develop the solutions that meet APRA’s expectations in addressing the risk of unsustainable contract terms.
Had the measure been implemented this year, clients of new income protection policies from then on would need to be underwritten every five years to assess their income, occupation, and pastimes.
A joint statement by Sarah Abood, CEO FPA, and Phil Anderson, CEO AFA, noted that had the measures been implemented now, the industry would have experienced a number of unintended negative consequences for Australians, including:
- Clients potentially not acting in time, resulting in cover being lost unintentionally.
- Potential for clients being left worse off at renewal, particularly those who have become pregnant, lost their job or where their income fluctuates, for example small business owners.
- Creating uncertainty for those who may be on a claim when the five-year term expires.
- Potential for clients to become ‘stranded’ in older closed products due to experiencing adverse health changes or other factors not enabling them to obtain cover in new products. As a result, these clients may experience differing price increases.
To read more about APRA’s suspension of the measure, click here.