There have been some changes to Income Protection insurance policies over the last 24 months… here are the highlights.
From 31 March 2020
Agreed Value income protection policies are no longer available.
From 1 October 2021
Insurers will have rules in place to make sure that benefits do not exceed 90% of a policy holders earnings for the first 6 months of the claim, and then do not exceed 70% of earnings after that.
Insurers will also halt offering guaranteed renewable policies and follow stricter disability definitions for longer benefit periods.
Why are the changes happening?
The Australian Prudential Regulation Authority (APRA) want insurers to improve their profitability and sustainability in regard to income protection products. This is due to the heavy and ongoing losses experienced over the past five years, totaling an amount of
$3.4 billion. These changes are being made in order to manage the financial risk associated with the product.
Income Protection Changes Explained
Reducing the risk of longer benefit periods
Insurers will have controls in place to reduce the risk of long-term benefit periods. This will effectively mean there will be stricter disability definition as well as internal benchmarks for new income protection products with long benefit periods.
Life Insurance companies to provide quality data
Australian Prudential Regulatory Authority (APRA) expect that life insurance companies will provide up to date data swiftly, so that results of customer experience can be released every 18 months.