Re imminent changes to IP insurance:
AFRM would never normally seek to be in any way alarmist, however the speed with which the Australian Prudential Regulatory Authority (APRA) is moving to ban certain types of Income Protection (IP) insurance prompts us to counsel that now would be a good time for you to review your circumstances, or encourage family members, friends etc... to review theirs as well. This includes anyone with a current Income Protection (IP) policy and anyone considering taking up such cover because APRA is banning IP products with more generous terms from early 2020.
Our advice is that prior to the first round of product changes becoming effective from 31 March 2020, it would be prudent to review your circumstances to consider how these changes affect you. We would encourage you to contact us prior to our Christmas shutdown (24 December 2019), or first thing in the New Year (6 January 2020), to talk to your Adviser given that process of implementing new insurance cover can take time. The key changes that will impact consumers include APRA’s order that insurers must:
cease the sale of Agreed Value IP policies (effective 31 March 2020);
ensure IP benefits do not exceed the policyholder’s income at the time of claim (effective 1 July 2021),
avoid offering IP policies with fixed terms and conditions of more than five years (effective 1 July 2021); and
ensuring effective controls are in place to manage the risks associated with longer benefit periods. (effective 1 July 2021)
For your reference, the full APRA letter to insurers is available on the APRA website at: Sustainability measures for individual disability income insurance If you have any concerns about the news shared in this communique, we urge you to get in touch with AFRM. We can assist in reviewing your cover and in locking it in for the long-term before the announced changes take effect. While it is important to note that existing policyholders’ terms will not change, it may be wise to review your existing cover to confirm it remains appropriate for your current circumstances before your ability to maximise your IP protection is permanently lost. Yours sincerely, Nicholas Hatherly. Managing Director AFRM