For risk professionals like myself, the countdown to September 30th, 2021 became a little frantic. We had five times as many client inquiries as in any other month, and we had to work extremely hard to meet these demands while still offering excellent advice. Advisors were unsure what would happen when new insurance policies were released in October, which was a major worry. We’d heard rumors that these products would be significantly inferior to the ones we’d become accustomed to. So, how different are these new contract types?

There are a few significant differences, but it remains to be seen how they will actually work. Long-term Income Protection claims would only be paid on an “Any Occupation” basis, and benefit periods for people over 65 would be eliminated, which was a major source of concern. It turns out that this isn’t the case for all insurers; some have devised their own methods for managing stability that differ from the APRA guidelines. In October 2022, the final step of APRA-mandated modifications will take place, when ‘guaranteed renewable contracts’ will no longer be available. Income and occupation can be evaluated every five years after that, and contract terms can be changed. Although you won’t need to be medically evaluated again, this could be to your harm. Meanwhile, as each insurer examines their competitors’ interpretation of APRA’s principles, contracts are being altered and updated. Nobody is publishing their PDS at the moment because they are constantly adapted and modified.

Big Changes

• Age 65 benefit periods:
  All insurers have actually retained long-term benefit periods such as “age 65” in at least one of their offerings. They are, of course, adding details that may make this a hollow promise. These details need to be very carefully considered.

• Own occupation cover:
  This is the key way to manage long-term claims. Initially, you would be assessed on your ability to do key duties of your job and also hours to match. After some time eg 2-5 years, many providers are opting to move to a “Suited occupation” definition. Though the term is slightly different this is essentially the “Any occupation” wording of the past. therefore the insurer would be able to assess if you were physically and mentally able to perform a job that you were reasonably suited for by education, training, or experience. Does this mean that a neurosurgeon is suited to pushing a broom around a warehouse? Untested ground so far.
  
• Sick/ long service leave and other sources of income:
  Previously you (or your employer) could choose to use long service leave or sick leave during or before your claim commenced. Now, many insurers are saying you must take this first before a claim can begin. Any income from investments or your business is also considered and may reduce your payment, where previously this was often irrelevant.

• How much is covered?
  Previously your “pre-disability income” was simply 75% of your indemnity amount across all insurers (some threw in an extra 10% for super). Now there is a vast difference, with some offers covering up to 90% for the first 6 months and then potentially dropping down to 50% on longer-term claims. How this is structured is usually an optional extra.
  
• Capability clause
  Every insurer bar one (PPS Mutual) has now applied a ‘capability clause’ of some sort. This clause means that if the insurer deems you medically able to return to work and be “off claim” they have the discretion to stop paying you. This is based on the opinion of your treating medical provider. Essentially this is designed to stop claimants from intentionally lowering their income or hours to still meet claim requirements.

• Recovery, re-education, and retraining
  Income protection was never designed to be a set and forget system, as you would need to show that you were attempting to recover and your treating doctor is required to sign off on your inability to work. There has been a significant expansion of this wording, where insurers are looking to rehabilitate and get claimants back to work. While this certainly goes a long way to reduce costs to insurers and consequently reduce premiums. The mantra that “work is good for you” has become significantly more prevalent and insurers are working on programs such as ‘Best Doctors’, to get people back to work.

• Level premium structures
  With changing product types and sustainability in question, there was a lot of speculation regarding level premium structures still being offered. It does appear that a few insurers have opted for Stepped premium structures only, while others are offering both. As mentioned before we have not yet reached October 2022 cut-off. This among many other factors may still change.

Options for income protection have never been more varied. Previously, an adviser or broker had to merely compare research ratings from one of two providers (IRESS or Omnium) and then pick the lowest premium. There were a few elements that were pertinent to the client’s particular needs every now and again. However, this straightforward procedure was eventually sufficient to demonstrate that the advisor was acting in the client’s best interests. Now that the customer has a wide range of possibilities, it is up to the adviser to thoroughly examine the client’s needs and identify a policy that meets those needs. This necessitates a thorough grasp of all risk products and how they interact with one another. Scoping advice down to “how much insurance would you like” is becoming increasingly dangerous because the consultant is obligated to fulfill this obligation.

You can still get good cover at a reasonable price

All things considered; I believe the “sky is falling” mentality promoted by insurers in the run-up to October 1st was mainly unwarranted. It’s almost as if there was some kind of marketing strategy at work here.

Risk advisers, in particular, despise unknowns. These improvements were hailed as the most significant in Australia’s insurance industry in 30 years. We were cautioned that even weaker Income Protection policies will be available at much greater prices. The industry as a whole became extremely apprehensive, and clients picked up on it.

At first appearance, it appears that some insurers have utilised a mix of the “capacity clause” and a “reduction of income test” to ensure that long-term claims, such as those for those over the age of 65, are still possible. The insurer, on the other hand, has more leeway to reduce this over time and so manage the cost. Others are likely to change their offers in the coming months to reflect this distinct view and remain competitive.

If everything settles down, only time will tell. For the time being, we have little certainty. Premiums may continue to rise, and contracts may be altered further. Regardless, the world continues to revolve. Claims are still being paid to those who are in need. Whatever occurs, if you have a good adviser, he or she will remain at your side the entire time.

Like all financial products, there are things you should think about before deciding whether this type of cover is right for you. If you have any questions about the insurance you have in place or what your options are, please get in touch with us by contacting (02)9188 1547 or email admin@rpwealthmanagement.com.au








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