New insurance regulations could seriously disadvantage women

New insurance regulations could seriously disadvantage women

Working mothers in Australia face many challenges. From navigating flexible career options, to funding maternity leave and compensating for a sizeable gender pay gap at work and in their superannuation. So it’s hardly thrilling, that the Australian Prudential Regulation Authority added to that list last week, leaving these women to pay for insurance policies they could receive nothing for.

Think of working mother, Susan. She’s taken out disability income insurance, a term commonly known as ‘income protection’, to maintain her financial independence. After all, 38% of working Australians will last just one month without earning an income. An insurance policy is a smart move. Or at least it used to be.

Susan falls pregnant and takes 12 months maternity leave to have her child, but at the end of her leave she suffers an illness and can’t return to work as she financially planned. Well, at least she has income protection, right? Wrong.

Thanks to our insurance regulators’ recent decision, income protection will be calculated on current earnings. Meaning Susan’s income protection payments will be 75% of nil. All the while she’s been paying her premiums. They won’t be refunded.

This is the harsh reality working mothers have been penalised with by the Australian Prudential Regulation Authority last week, facing the risk of earning exactly zero dollars during an income protection claim.

In efforts to create a more sustainable insurance industry, APRA has made the call for insurance companies to discontinue “agreed value” policies, and instead offer “indemnity” policies” with a 5-year maximum term. According to APRA, agreed value policies end up paying the customer more than their income at the time of claim, giving customers a disincentive to return to work.

This is simply not the case when it comes to working mothers, whose ability to remain financially independent has clearly not been considered by our regulator.

Under agreed value policies, working mothers are covered for 75% of their income, verified at the time of application. Indemnity policies however, mothers suffering an illness or injury during maternity leave, will have their claim calculated on current earnings. Meaning in Susan’s case, she’d receive 75% of nil, $0 dollars.

While a generous insurer may average out earnings over the last 3 years, an indemnity claim can still be significantly less than a liveable amount.

APRAs recommendations taken in context to the existing 14% gender pay gap, and the almost 50% gap in women’s retirement balances vs men makes the impact of this mandate even more devastating. The financial gap due to time out of work, with no insurance policies contributing to superannuation, will continue to accelerate the nation’s wealth gap between genders.

Consumers have weathered malpractices brought to light by the recent Royal Commission into Banking and Financial Services, and are now yet again paying the price due to the lack of industry self-regulation.

This is a time to make amends, to learn from previous mistakes, and to structurally rectify the financial imbalance we have in society. APRA and the insurance industry alike can take this opportunity to tangibly protect women. And, for the sake of our communities and the economy, I hope they finally take that chance.

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