Regulator has dictated the end of Agreed Value Income Protection
At the risk of sounding sensationalist the significant impact of new changes to Income Protection should not be underestimated. If you have not yet secured an Agreed Value comprehensive Income Protection Policy you will want to read this and, I suggest, take prompt action. If you have already done so (almost all Examined Life clients will be in this category), you may wish to forward this to a friend or colleague who has not as yet. Agreed Value Income Protection is confirmed at the time of application, providing certainty in the event of a claim. By contrast, an Indemnity policy assesses your entitlement at the time of a claim.
In December 2019 the Australian Prudential Regulation Authority (APRA) announced stealthily imposed measures to significantly claw back the benefits available to new Income Protection policies from 31 March 2020, including the scrapping of new Agreed Value policies. This was done without parliamentary debate and arguably little industry consultation. APRA stated its expectations with effect less than four months out from its announcement, and mandated that insurers who do not comply from 31 March 2020 will effectively be fined. While it is seeking feedback on these expectations prior to 29 February 2020 (hardly a reasonable timeframe for consultation) insurers have already indicated that they will fall in line promptly, no doubt to avoid sanctions.
“ If you are an Examined Life client with a current Agreed Value Income
Protection policy, you will not lose these valuable benefits (at this stage)
and need not be alarmed “
Increasing claims and product innovation over the last decade have contributed to significant losses for insurers on Income Protection, to which they have responded by escalating premiums. Reform has been necessary for some time while insurers have adopted willful blindness as they chased market share. These practices are clearly unsustainable. APRA’s hastily imposed ‘solution’ however is myopic and ignores macro-economic factors at play. Good advisers will review their clients’ needs regularly and maintain appropriate levels of cover. These new rigid mandates ultimately only penalize the end users.
We expect that new Agreed Value Income Protection policies will no longer be offered from 29 March 2020, and thereafter other features common to comprehensive and professional Income Protection policies will also disappear. These will be replaced with an Indemnity policy, which pays a benefit according to your income in the twelve months prior to a claim (rather than confirmed at application). Policies will also have to be renewed every five years, rather than the current guaranteed renewable to age 65 or 70. While APRA will finalise its position on a range of related measures by 30 June 2020, taking action prior to 29 March is prudent.
If you are an Examined Life client with a current Agreed Value Income Protection policy, you will not lose these valuable benefits (at this stage) and need not be alarmed. If you have an Indemnity (not Agreed Value) policy with us, we have either contacted you directly recently or will do so shortly to discuss any appropriate action you have available. If you are unsure, please don’t hesitate to contact us to confirm your position.
