As we find ourselves in increasingly uncertain and transformative times, workers across a growing range of industries are haunted by the spectre of losing their primary source of income. When even a few short weeks without that vital financial support can represent a ‘make or break’ red line, many individuals and families are turning to income protection insurance in Australia, which is undoubtedly a wise decision.
Broader Trends in the Income Protection Insurance Market
- Record sales
A record number of income protection policies were purchased over the last financial year. This can, in part, be attributed to the growing ‘cost-of-living’ crisis that threatens the lifestyles and economic security of an alarming number of individuals.
- Increased demand for index-linked income protection insurance policies
Unchecked inflation has driven the interest in insurance policies that adjust with wage increases to ever-greater heights.
- Expert-led insurance policy sales
Professional financial advisers orchestrated the majority of all income protection policies over the last financial year. Although sourcing, researching, comparing, and assessing insurance policies for oneself has never been more straightforward, this highlights the importance people place on professional advice or perhaps their lack of faith in the industry itself.
- Critical illness coverage expansion
Sales of standalone critical illness policies have surged to nearly four times their level a decade ago.
Income Protection Insurance in Australia: Market Trends
Income protection insurance in Australia has undergone significant evolution due to regulatory changes, emerging market trends, and shifting consumer needs. Some key factors affecting the industry include:
- Policy adjustments
Insurance providers have almost unanimously adopted an attitude that the ‘any occupation’ definition attached to disability claims means policyholders must be unable to perform any work for which they are reasonably qualified.
- Premium changes
As rising costs have put pressure on insurance companies from all angles, they have been forced to raise their premiums. Although methods vary, some insurers are shifting from a policy of ‘lifetime’ to ‘age-based’ pricing that sees premiums rise as the policyholder ages.
- Shorter benefit periods
Income protection insurance in Australia now typically offers a shorter benefit period rather than the standard longer-term options that were prevalent in recent years.
- Product simplification
In the battle to attract and retain clients, insurance providers recognise that consumers appreciate and gravitate towards simple, straightforward policies with no hidden caveats or complex conditions. Although the policies retain the same level of complexity, insurers often streamline them to make them more understandable, providing clear, concise definitions and highlighting standardised features.
- Enhanced consumer protection measures
Improved ‘cooling-off’ periods and provisions for incidents of financial hardship enable policyholders to pause their insurance coverage or adjust their premiums and coverage without losing any accrued benefits.
- Regulatory reforms
The Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) have introduced stricter guidelines aimed at enhancing consumer protection and overall transparency.
- The aftermath of COVID-19
Some income protection insurance policies have undergone adjustments that address pandemic-related risks in more detail, affecting coverage levels and potential claims.
Final Thoughts
Income protection insurance in Australia has undergone notable shifts in recent years compared to global markets. Although Australia has experienced unique changes and trends, the similarities and differences between the broader international picture and the Australian microcosm prove they are inextricably linked.
