Costs hit disability cover
Convincing Australians of the value of life insurance has always been an uphill battle. People don’t like paying for things they hope they’ll never need. But just as term life cover provides financial security if we die, income protection or disability income insurance offers an important safety net.
In recent years, disability premiums have been rising due to a low-interest-rate environment (meaning life companies are earning less from their capital and policy reserves) and an increase in claims. The rise in claims reflects greater prevalence of mental health conditions and a legacy product design issue that means in some instances claimants are better off not working.
APRA, the regulator, is pressuring life companies to adapt the way disability cover is offered so the sector is sustainable, but continued large-scale losses are making premium hikes unavoidable.
When the cost of financial planners delivering risk advice arguably exceeds the amount clients are willing to pay, planners have little choice but to increase their fees. In a market where both advice fees and premiums are rising, passing these costs to consumers is likely to see fewer Australians adequately insured.
Kristen Turnbull, deputy MD, CoreData Research