Concerns have been raised by the Actuaries Institute about the sustainability of the disability insurance market, which has been running at over a $3 billion loss for more than five years.
An Actuaries Institute Taskforce has provided a report with accompanying recommendations for Australia’s disability income insurance market that would reset sustainability in the sector, as “the market is at risk of failure”.
This outcome follows a research paper from audit, tax and advisory group, KPMG, which found that life insurance companies have lost $3.4 billion over five years selling complex products to people, which is threatening the viability of the sector.
Ian Laughlin, Taskforce Convenor, says if there is no overhaul of the sector, people who require insurance cover may not be able to afford it in the future, which will result in life insurance companies, who sell individual disability income insurance policies, continue to suffer large losses.
“This is neither in the interests of customers nor the community at large,” says Mr Laughlin.
Individual disability income insurance policies are critical for people with disability who lose income due to their disability.
There are around 850,000 insurance policies on issue currently, which shows how important this market is to people with disability.
The Actuaries Institute Taskforce recommendations included a review of the laws around life insurance so that insurance companies can make fundamental changes to societal views of disability and returning to work.
Additionally, the taskforce warned that regulators will have to continually intervene unless the sector makes sustainable improvements to its business models, practices and outcomes.
President of the Actuaries Institute and key member of the Taskforce, Hoa Bui, says, “The lack of sustainability of the disability insurance market is one of the most pressing issues for life insurers today.
“We’ve looked at the issues through a consumer lens to find a way forward for all parties.”
The report from the Actuaries Institute, 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.”
The taskforce wants the outcomes to achieve stable prices over time, sustainable outcomes for insurers, improve community confidence in insurance, and encourage product features, underwriting and claims practices that have closer alignment between consumers and insurance providers.
However, if there is a failure in this reform, the taskforce believes there would be a loss in productivity in communities, a rise in community and family based support, increased social security costs, and a decline in people’s mental health, confidence and self-worth.
Recommendations from the Actuaries Institute include:
Insurers gaining better insights from customer claims experiences
Simpler and cheaper products that focus on return to health and work
Strong controls over the level of benefits paid
Products that allow for advances in medicine, technology and society’s expectations
Sustainability heat maps
Review of Board competition to ensure risks are managed appropriately
Clear understanding of best interest dist and changes to product ratings
Standardised collection of medical information and better underwriting and claims data
Mr Laughlin says, “The taskforce strongly believes that the problems are more deep-seated and diverse than just product terms and conditions.”
He adds that loss minimisation is not clearly expressed in disability income insurance contracts.
The Actuary Institute is preparing for its next step with stakeholder and industry feedback. The consultations close on October 31.
To read the report and its recommendations, head to the Actuaries Institute website.