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APRA, the prudential regulator, announced this week that the life insurance industry’s ongoing failure to design, price and manage IDII (also known as individual income protection insurance) in an appropriate manner has resulted in material losses from this product, notwithstanding significant premium increases.

Over the last five years, the industry has reported IDII losses in excess of $3 billion. At the same time, policyholders have had to bear significant and frequent premium increases, in excess of what they would have expected at the commencement of their contracts. These factors are posing a threat to the viability of the IDII product and the protection it offers the Australian community.

IDII has been an area of heightened focus for APRA for some time. A phased thematic review was undertaken with the objective of identifying and driving the changes required to improve the long-term sustainability of IDII.   APRA is concerned with the current state of affairs and considers the detrimental impact on life companies and consumers to be a significant prudential risk. They note that a step change is required to address the financial risks of IDII for life companies, as well as the longer-term affordability concerns for consumers.  In light of the current situation,

APRA deems it appropriate to take immediate action to address this prudential risk. The measures that insurers need to take are set out in this letter. These measures consist of three distinct components reflecting APRA’s additional expectations and the consequences for not meeting them.

Contact Experien Insurance Services if you would like to find out more.