Australia’s disability insurance market is at risk of failure unless it is subjected to a broad range of changes, according to Actuaries Institute Taskforce which has found broad-ranging shortcomings.
The convenor of the Taskforce, former Australian Prudential Regulation Authority executive, Ian Laughlin, said without an overhaul, those who needed cover may not be able to afford it in the future and life insurance companies selling individual disability income insurance policies will continue to suffer very large losses.
"This is neither in the interests of customers nor the community at large," he said.
Laughlin said the sector must offer products that provide more certain outcomes, are more easily understood by consumers with features and prices that better meet their needs.
Taskforce recommendations, circulated widely for stakeholders’ consideration, include a review of the law around life insurance, so insurers can better take into account fundamental changes to the way society views disability and returning to work. It issues a warning that regulators will continue to intervene until the sector shows sustainable improvements in practices and outcomes.
The report Disability Insurance Income Provisional Findings and Recommendations states "the product has become more and more complex over time, making it difficult for customers to understand and be satisfied with claims outcomes. At the same time, affordability and accessibility for those needing cover is declining”.
"Increasingly, those with cover are finding the cost prohibitive, and the more-healthy policyholders are then likely to not maintain cover."
The report, which includes findings, recommendations, and a paper on the framework for a ‘reference product’ for risk and uncertainty assessment, involved input from over 40 actuaries, and discussions with regulators ASIC and APRA, Treasury, CEOs, boards, lawyers, consumer advocates, claims and underwriting professionals, doctors and financial advisers.
It follows the release earlier this year of a KPMG research paper, commissioned by the Actuaries Institute, that found life companies lost $3.4 billion over five years by selling complex products to individuals, which ultimately, threaten the viability of the sector.
The Taskforce has not taken into account the likely negative impact of COVID-19 on future claims.
The major recommendations contained in the report are:
- Insurers gain better insights into customer claims experience;
- Simpler and cheaper products with a focus on return to health and work;
- Strong controls over the level of benefits paid;
- Products that can be updated to allow for advances in medicine, technology and society's expectations;
- Sustainability heat maps and a review of board composition to ensure risks are understood and managed;
- Clear examples of best interest duty and changes to product ratings; and
- Standardised collection of medical information and better underwriting and claims data.