If ever there was a year to see your risk insurance adviser, this is the year.
Premiums are on the rise and the Income Protection market has changed dramatically.
Over the past 5 years Australia’s life insurance industry has made billion-dollar losses, primarily due to a large increase in the cost of claims and the continuing long-term low interest rate environment. Income Protection policies are the main culprit behind the increasing cost of claims, with far greater numbers of successful Income Protection claims made and for longer durations. Whilst successful claims and usage of insurance policies is a good thing for consumers, the continual incurring of losses has prompted concern from the regulator, Australian Prudential Regulation Authority (APRA), that the life insurance industry is unsustainable based on the current insurance contract arrangements.
To ensure continuity and sustainability of their business model, insurers have exercised their rights to increase insurance premiums. These increases range from expected inflationary adjustments up to 72.5%, depending on insurer and product.
Given Australia’s well documented underinsurance problem and continuing need for a sustainable life insurance industry, in March 2020 APRA mandated the introduction of new Income Protection insurance contracts with significant differences to those previously available, as follows:
- Removal of Agreed Value Income Protection contracts, meaning monthly benefits payable to an insured person after a successful claim will be restricted to the lesser of the insured amount and 75% of pre-disability income for all new contracts. Agreed Value contracts allowed clients to have a guaranteed payment regardless of any reduction in income which is often considered more beneficial. (Note existing Agreed Value contracts can remain in place).
Further changes expected during this year include:
- Alteration of definitions reducing the possible claims that can be made.
- A reduction to the amount that can be insured.
- Income Protection contracts will no longer be guaranteed renewable. Policies will be offered for a term of 5 years and insurers can alter or cancel the policy at this time.
- Removal of additional benefits attached to policies.
Prior to all these changes being finalised, there exists an opportunity to obtain Income Protection coverage under a more comprehensive contract of cover. If you require Income Protection insurance, it is vital you consider the availability of superior policies now before all these changes are initiated.
Whilst the landscape for personal insurance is changing, the importance remains the same. If you cannot work due to illness or injury, how will you pay your mortgage? School fees? Everyday living expenses? If you were to pass away, how will your family manage financially?
We regularly review policies to ensure they remain appropriate and competitive and will be focussing on these reviews even more so given the significant increase in premiums. Our advisors welcome contact from clients regarding policy queries or review requests and can assist in assessing appropriate replacement cover or methods to reduce premium cost.
These changes are affecting everyone, but rest assured we can help you navigate these challenging times and ensure you have cover to suit your needs at a cost that is sustainable for you.