ACC changes mean income protection premiums likely to rise
Since the new ACC regime was introduced in July, insurers have been carrying extra risk on their income protection policies so that premium increases are now increasingly likely.
Thursday, September 23rd 1999, 12:00AM
Since the new ACC regime was introduced in July, insurers have been carrying extra risk on their income protection policies so that premium increases are now increasingly likely. That's because self-employed people can now opt for only a minimum amount of ACC cover (80 per cent of just $14,560 for full-timers).
As the amount that income protection plans pay out is less any other income, and "other" includes ACC money, insurers are faced with paying out more if their clients haven't fully covered their ACC risk.
Most insurers have taken this on the chin for the meantime and agreed to top up the difference. However, AIA reworded its policy last month so that anyone not fully covered under the scheme would effectively forfeit the shortfall.
General manager David Whyte said today that AIA had now reconsidered and that it had a relatively low risk exposure anyway to the classes of people having the most accidents. The firm is also lifting income protection premiums by three per cent from October 1, citing rising medical investigation costs.
"My understanding is that the others are making losses on income protection products, except for AMP and ourselves," Whyte says. "Most of the others are prepared to top up and will probably look at pricing later in the year."
Insurance brokers have reported some confusion among their clients over who can opt to take only minimum cover and whether they're now doubling up by having income protection. Brian Klee of Aon Consulting says the issues weren't well communicated by ACC and needed written clarification.
What it boils down to is this. Under the new ACC regime, there is now one group of people who can opt for a minimum level of accident cover and that's the self-employed filing IR3 returns.
"The issue is that they have the ability to contract out and take only the minimum cover with ACC providing they have their own income protection insurance," Klee says.
"Under the Act, everyone else has to take full cover, whether through ACC or a private insurer."
Graeme Lindsay of Strategy Financial Services says one reason that's a concern for insurers is that self-employed people make up a disproportionately large proportion of those with income protection.
"So I think that you can expect income protection fees will increase."
Another concern was that people were doubling up by taking out income protection insurance. However he points out that ACC only covers you for workplace accidents and not in the event of illness.
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