Income protection constricted
AUCKLAND: Life insurers have hiked the cost of income protection insurance and tightened the qualifying criteria in the past six months making it tougher to get cover in the wake of major financial losses on the product in Australia.
Tim Fairbrother, a financial adviser who specialises in insurance, said across the industry there had been an increase of about 10% for income protection but some insurers had hiked the price by as much as 15% while for others it was 5%.
Income protection insurance provides a payout if you lose your ability to earn based on illness or an injury. Redundancy cover is a separate policy that people take out to cover their income if they get made redundant.
Policy price increases are based on individual cover and also typically rise as a person ages unless they agree at the start to level the premiums until a certain age.
Mr Fairbrother said it had got a lot tougher to get cover in the past six months.
Some insurers had stopped providing agreedvalue cover, where the parties agree on an income level when the policy is underwritten, to selfemployed people, he said.
In some cases he had been unable to get income protection cover at all for his clients resorting to using other types of insurance instead.
Advisers said problems in the Australian income protection market were the drivers for the rise.
Mr Fairbrother said he was told by an insurer in February that it was concerned about the Australian market and the fact the product there had become unsustainable after a rising number of claims driven by mental healthrelated cases.
Two New Zealand insurers put their prices up in April. This was then followed by others as uncertainty about Covid19 hit.
At an industry conference held online this week by the Financial Service Council insurance underwriter Swiss Re warned that New Zealand insurers also needed to make changes.
Kimberley Robinson, product solutions leader at Swiss Re in Australia, said Australian regulator APRA had intervened after big losses in the sector which added up to about $A3 billion ($NZ3.21 billion) over five years.
‘‘We have suffered losses on individual income protection on an unsustainable level.’’
Mr Robinson said factors contributing to those losses included an increasing focus on sales volumes over profitability, crosssubsidisation of the product and a fiercely competitive market.
The industry had also come under immense pressure from the media and regulators since 2016 and there had also been high turnover of senior managers in the sector.
In New Zealand life insurers have come under fire from both the Reserve Bank and Financial Markets Authority through a conduct and culture review.
The Government is in the process of changing the law to enable the FMA to license and police sector conduct.
Mr Robinson said APRA had said insurers had partly created the problem by having poor data. — The New Zealand Herald