Disability Income insurance products in Australia provide critical cover for many members of the community who may suffer loss of income because of disability. It is provided both as Individual (or Retail) Disability Income Insurance (IDII, usually distributed by financial advisers) and through Group DII policies (usually as part of superannuation).
The IDII product has become 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 consumers is declining. As the product has become increasingly cost prohibitive there has been a greater tendency for healthier policyholders to cease their insurance. Over time, the higher claims cost has led to further price increases for the remaining policyholders.
Meanwhile, insurers had lost very large sums on IDII business, as claims have climbed in frequency and amount. Price increases have not been enough to compensate. Some insurers and reinsurers effectively withdrew from the market. In a letter to all Life Insurers and Friendly Societies in May 2019, APRA noted that an area of heightened focus for them was the life insurance industry’s failure to design and price sustainable IDII products and expressed concerns that that product design and pricing decisions may be contrary to the long-term interests of policyholders, amongst other matters.
In response to the chronic issues with IDII and APRA’s expressed concerns regarding the sustainability of IDII products, the Actuaries Institute set up the Disability Insurance Taskforce (the Taskforce) to conduct a comprehensive review of issues with IDII. It was felt that the Institute was in a unique position to help.
This comprehensive review culminated in April and May 2021, with the Taskforce releasing documents setting out final recommendations and providing some decision-making tools for actuaries.
Since this time, views of regulators and others have been considered and these documents have been reviewed, with the Institute releasing good practice principles-based guidance to the actuarial profession to assist the profession with assessing, measuring and monitoring the sustainability of their insurer’s IDII products in light of APRA’s continued sustainability concerns. These documents were issued in December 2022.
DECEMBER 2022
IDII - FINAL RECOMMENDATIONS
This document gives an overview of the feedback received during the consultation period, the Taskforce’s views on that feedback and final Taskforce recommendations, covering multiple parties.
The work was done to support actuaries in their various professional roles, other insurance professionals, boards, management, regulators, and other interested parties.
View Findings and Recommendations Document.
IDII - THE SUSTAINABILITY GUIDE
This is intended to be a principles-based framework that could be adopted by actuaries and other interested parties to assess, measure and monitor the sustainability of their insurer’s IDII product. It will be of most interest to insurance company boards and management, technical specialists and regulators.
View the Sustainability Guide Document.
MAY 2023
THE ROLE OF THE RISK FUNCTION IN LIFE INSURANCE PRODUCT SUSTAINABILITY
This looks at the important role the Risk Function can play in promoting product sustainability within direct life insurance companies and reinsurers. Specific areas covered include: the role of the CRO vs AA in product sustainability; how risk appetite statements can be used; and specific actions the Risk Function can take across the value chain functions. The paper aims to be useful to all risk practitioners, irrespective of their professional background.
View the Role of the Risk Function in Life Insurance Product Sustainability.
FEBRUARY 2024
DISABILITY INCOME DATA COLLECTION GUIDE
This document is intended as a guide to assist life insurers with determining what data they could collect for their portfolio having regard to community expectations, privacy, and other considerations to inform their understanding of product sustainability. The document is intended to be useful for all life insurance practitioners.
View the Disability Income Data Collection Guide.
APRIL 2024
WORK CAPABILITY ASSESSMENTS IN INDIVIDUAL DISABILITY INCOME INSURANCE: INTRODUCTION AND CONSIDERATIONS FOR ACTUARIES
The Disability Insurance Taskforce (DITF) of the Actuaries Institute published in December 2022 the Individual Disability Income Insurance Sustainability Guide, aimed at supporting actuaries in enhancing practices for sustainability in the retail Individual Disability Income Insurance (IDII) market.
This Paper, Work Capability Assessments in Individual Disability Income Insurance: Introduction and Considerations for Actuaries, provides insights into good practice principles that insurers might use to improve the effectiveness and clarity of defining disability and work capacity in IDII. Additionally, the Paper offers relevant case studies and principles for consideration when assessing work capacity at time of claim.
View Work Capability Assessments in Individual Disability Income Insurance: Introduction and Considerations for Actuaries.
OTHER SUPPORTING WORK
Concept Note: Fairness in the Life Insurance System can be accessed here.
Information Note: Analysing Disability Income Experience and Setting Best Estimate Assumptions can be accessed here.
In late 2021, the Taskforce commenced work on retail TPD/Trauma business and also to consider Group DII.