APRA says it is concerned about the commercial sustainability of Disability income insurance (DII) in its current form. To better understand the situation, APRA has announced that it has embarked on the second stage of a thematic review of insurers involved with individual DII.
Disability income insurance (DII), also known as income protection insurance, is a protective cover that provides replacement income to policyholders when they are unable to work due to illness or injury.
DII offered to individuals outside of superannuation (individual DII) has been an area of heightened focus for APRA over the last 12 months due to its ongoing poor performance and adverse experience.
Phase One of the review identified the following issues:
- sustainability issues with the current benefit design and pricing structures;
- barriers to releasing a more sustainable individual DII product;
- a possible lack of alignment between the interests of primary writers and reinsurers, particularly in relation to older legacy portfolios; and
- potential room for improvement in primary writers’ oversight of, reporting on, and resourcing for, claims management activities.
APRA says these factors need to be addressed to help insurers develop a sustainable product that continues to provide appropriate protection to policyholders. A product that is beneficial for policyholders, insurers and reinsurers will avoid market disruption caused by significant pricing increases or reductions in cover by insurers and reinsurers.