Designing sustainable products while balancing affordability is crucial to driving good customer outcomes
 Gavin Teichner
TAL Executive General Manager: Individual Life |
It is two years since APRA stepped in to address the cycle of losses and price increases in the Individual Disability Income Insurance (IDII) market. In that time, we have seen the landscape shift as life insurers have grappled with finding the important balance between sustainability, affordability, and value. In October 2021, we saw a significant refresh of Individual Income Protection (IP) offerings. Whilst all products were underpinned by similar guidelines, life insurers launched a diverse range of products, each with its own lens on how to balance coverage with long-term affordability. Since then, as financial advisers and customers have begun to familiarise themselves with these new products, life insurers are naturally continuing to update them in response to this feedback, leading to some convergence around a set of new product benchmarks. |
Has the industry made progress?
Changes made to the IDII products and practices appear to be delivering the intended outcomes. APRA reports1 show the profitability of IDII has improved. This suggests a positive trend towards sustainable products and more affordable premiums for customers over time. Despite the inevitable convergence of some products, we are seeing advisers recommending benefit designs and options that were not previously available, giving customers – their clients – more choice.
There is no doubt that higher interest rates and a strong employment position have also contributed to the improvement, but there is reason to be hopeful that the take up of a range of sustainably designed policies is helping to provide better ongoing customer outcomes.
This has never been more important as Australians face cashflow pressures and juggle tight budgets. Large, unexpected changes in costs are proving very difficult for customers, resulting in many reconsidering, reducing, or even cancelling cover.
Providing affordable yet sustainable coverage in the long-run
The challenges of growing in a competitive yet subdued market, and customers looking for value amidst cost-of-living pressures present opportunities for life insurers to provide more affordable and competitive pricing for customers.
In providing affordable products for consumers, particularly at policy inception, life insurers should closely consider the impact of how premium changes over time affect affordability. This is a point also reiterated by the industry regulators. While more affordable premiums at policy inception provide short-term benefits to consumers, in many cases products with lower initial pricing result in higher pricing in later years. For the benefit of customers, greater focus must be placed on how premiums costs evolve over time. This should also include providing options to consumers around how they can manage future premiums, such as preventative health measures that may lower premium costs.
For life insurers to be successful in delivering good long-term customer outcomes, it is crucial to focus on strategies that provide stable, affordable pricing over the longer term.
Ensuring all products remain sustainable for life
While significant progress has been made in designing more sustainable IP products, more can be done to extend this same thinking into other areas of Disability Cover. TPD products have been influenced by a similar range of factors impacting IP products in recent years.
Chief among these considerations is ensuring the benefits can adequately support the claimant during their time of need while remaining affordable and accessible.
Our working lives have evolved, and so too should the way products respond to continuous changes in occupation and income patterns, which will mean that aspects of TPD product definitions may need to be updated to better respond to these trends.
At its core, our industry’s overall objective should be to provide greater certainty to consumers around future premium costs. This aligns with customers’ expectations, and ultimately builds trust in the industry as a whole.
A long-term sustainable vision for the future
At TAL, we have continued to review our propositions to ensure they continue to meet the needs of advisers and their diverse clients. In doing so, we have identified opportunities to meet the needs of a broader set of customers who may previously have found it difficult to access the cover they needed.
However, in making these changes, we have not lost sight of our responsibilities as a product designer and to the pool of all insured customers (those who claim and those who do not). We remain committed to ensuring we produce stable, predictable outcomes for customers over the long term, alongside upfront affordability. We are also working to leverage the lessons of the last two years to proactively address aspects of TPD product design in ways that continue to support customers.
Long-term sustainability requires an ongoing examination of products, and product design, and the industry must get this right to ensure Australians can obtain cover and retain that cover for longer to meet their needs.
1 https://www.apra.gov.au/sites/default/files/2023-08/QLIPS%20Highlights%20June%202023.pdf