The Australian Prudential Regulation Authority (APRA) has confirmed that the spike in premiums for individual disability income insurance (IDII) has been due to declining profits over the last few years.
When asked by a Senate Committee to confirm whether the raise on policy premiums was to subsidise new policies, APRA said it was unaware of any discounts being offered on new policies.
Brandon Khoo, APRA executive director – insurance, said the reality was IDII had been a loss-making line for a number of years, which was why premiums had risen.
“Over the last five years the industry has lost about $4 billion on that particular line, including a loss of $1.2 billion over the last financial year, so the increase in premiums is understandable in that regard,” Khoo said.
Khoo said APRA had been putting a lot of work into IDII, particularly when it came to preventing the decline in profitability.
“We have been engaging with the industry on that in the last couple of years and we have introduced measures that require the industry to comply with in order to make the product more sustainable,” Khoo said.
“The industry will be required to implement those measures by October, and some have started introducing those measures already.
“Our expectation is that should bring the market back to a more sensible level, which will apply specifically to IDII.
“We have imposed capital measures to incentivise the insurance industry to comply, but we have also noted to the industry that they should take account of the measures we have imposed on IDII and apply those across other lines.”