Insurance has continuously proven to be an imperative element of every financial plan, aiding our clients in reaching their unique financial goals. The right level of wealth protection will work to compliment your tailored financial plan, acting as a safety net to underpin you and your loved one's stability and success, even if you are no longer in a position to be earning a steady income due to ill health.
Considering the importance of insurance there have been several shifts in regulation over recent years, that have come in the aftermath of the Banking Royal Commission. This has impacted insurance brokers, as well as many Australians that are insured. In a bid to regulate the market and maintain a level of sustainability, the Australian Prudential Regulatory Authority (APRA) placed a particular importance upon tightening up income protection policies.
In this piece today, we will be further elaborating on the rather recent changes to insurance regulation in Australia, some of which may apply to your situation directly.
The Ripple Effect Throughout the Industry
The changes to insurance regulation in Australia, were felt by many, especially by those who work within the industry. Since the Banking Royal Commission, financial advisor numbers have dwindled from a peak of 28,914 in 2019. The 2022 financial year saw approximately 2,671 advisers leave the industry, with a large portion of those being insurance advisors.
At the beginning of the financial year, there were 18,948 that remained on the Financial Adviser Register of the Australian Securities and Investments Commission (ASIC), which soon dwindled down to 16,277 advisors by the end of June. (Source: Professional Planner)
Despite the somewhat discouraging statistics presented above, it is not all doom and gloom. Reports made on the 22nd of July reveal that the present financial year seems to be looking increasingly positive for the moment, with the number of financial advisers growing for the third week in a row. Bringing the overall growth for FY23 to 170, according to Wealth Data. (Source: Money Management)
The Added Pressure of the FASEA Exam
The Royal Commission into the misconduct in the Banking, Superannuation and Financial Services industry in 2017, resulted in the increased burden of paperwork, but more notably, the tougher education standards which were introduced as a result.
Until January of this year, FASEA was the body that conducted the exams in which ASIC registered advisors were required to undertake in order to maintain their regulatory registration. The pass rate of the exam has been on a substantial downward trend, with the final sitting in 2021 having a pass rate of 52 per cent.
It is commonly known that the difficulty of the Financial Advisor Standards and Ethics Authority examination placed an additional amount of stress upon advisors, further attributing to the sizeable fraction of insurance advisors which we have seen exit the industry.
How Income Protection Has Been Affected
As a direct result of the several changes made to insurance advice by APRA, many insurance products have been watered down, with income protection being the worst affected. While the amendments to the income protection insurance industry won’t impact customers who have purchased an IP policy before the 1st of October 2021, there remains several factors to consider for those who are planning to update their existing product or take out new cover.
New customers will no longer be able to purchase an agreed value policy, while a cap has also been placed on insurable income by APRA. As a result, benefits are now being capped at a maximum of 90 per cent of pre disability earnings at the time of claim. Payments remain at this level for the initial six months, and then will drop to up to 70 per cent of earnings from then onwards. However, this is dependent on options chosen within your policy and your provider.
Insurance remains more important now, than ever and as your team of well-versed industry experts, we are here to help you with any of your financial worries. Contact one of our qualified financial advisors today to aid you in assessing the current cover you have, considerate of your need and competitive market options.
Yield Financial Planning is Here to Help
It's no secret that Insurance is one of the most necessary components of your financial plan, so if you're looking for more clarity on how these changes to insurance regulation in Australia affect your situation and cover, don't hesitate to contact our team of industry professionals at Yield Financial Planning.