The level of industry representation on the FASEA Board has been increased following Senator Jane Hume announcing that Will Hamilton would join the Board as a part-time Director earlier this week. In other regulatory news, the Australian Prudential Regulation Authority (APRA) has launched an intervention into the life insurance market in response to ongoing heavy losses in the sector in regard to individual disability income insurance (DII). The action includes ceasing the sale of Agreed Value policies.
New FASEA Board Member
A statement from the office of Senator Hume said Mr Hamilton will bring to the Board experience in carrying on a financial services business. He is the Managing Director of Hamilton Wealth and was previously General Manager Wealth Services at NAB, Head of Private Wealth Management at Goldman Sachs JBWere, and Managing Director and Chief Executive Officer of Deutsche Securities Asia in Hong Kong. Mr Hamilton is also currently the Commonwealth representative on the Professional Standards Council, an appointment made by the former Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer.
The announcement means that board is now at its full number, after the previous resignation of CountPlus chief executive Matthew Rowe, who stepped down from the FASEA board on 14 August 2019. Hamilton’s appointment increases the industry representation of FASEA’s board to three, joining former AFA president, Deborah Kent and former FPA and Financial Ombudsman director Louise Lakomy. Other Board members include the Chair, Catherine Walter, Mark Brimble, Dr Simon Longstaff, Carolyn Bond, Elissa Freeman, and Catriona Lowe.
Hume said this appointment will continue the high level of skills and experience available to FASEA, to help ensure that the key sectors of our economy are effectively regulated.
APRA Announce Insurance Changes
APRA has recently announced a series of measures, including capital charges, that will require life insurers and friendly societies to address flaws in product design and pricing that are contributing to unsustainable practices. APRA said it wrote to the industry in May requesting urgent action to address problems and Life companies had reported losses of a billion dollars since then. It said Life companies have collectively lost around $3.4 billion over the past five years through the sale of DII to individuals.
APRA said that life companies have been keeping premiums at unsustainably low levels and designing policies with excessively generous features and terms that, in some cases, provide a financial disincentive for policyholders to return to work. With already at least one major reinsurer indicating it was no longer prepared to reinsure individual DII, APRA Executive Board Member Geoff Summerhayes said there is now a genuine risk insurers may start withdrawing from the market.
APRA has decided to impose an upfront capital requirement on all individual DII providers, effective from 31 March 2020. The capital requirement will remain in place until individual insurers can demonstrate they have taken adequate and timely steps to address APRA’s sustainability concerns. In instances where individual insurers continue to fail to meet APRA’s expectations, APRA may also issue directions or make changes to licence conditions.
APRA also expects life companies to better manage riskier product features, including by:
- ensuring DII benefits do not exceed the policyholder’s income at the time of claim, and ceasing the sale of Agreed Value policies;
- avoiding offering DII policies with fixed terms and conditions of more than five years; and
- ensuring effective controls are in place to manage the risks associated with longer benefit periods.
APRA said it will engage with industry stakeholders on the implementation of these measures and to ascertain other possible measures to assist returning IDII to sustainability. While acknowledging changes needed to be made to support sustainability for income protection insurance, many advisers were concerned about how the changes would effects their clients, including the adviser’s mandated requirement to respect their clients’ best interests. Some commentators have countered the argument of poor product design by claiming that over regulation is the cause of the problem, saying this has led to lower new business inflows to cover the outflow of claims.