APRA corrects ALP on benefits of group over advised TPD

Insurance policies obtained through individual financial advice and policies obtained through superannuation are not directly comparable, according to the Australian Prudential Regulation Authority (APRA).

The regulator has urged members of a Parliamentary committee to be cautious in making comparisons between advised and group insurance with APRA commissioner and former life insurance executive, Geoff Summerhayes suggesting they serve different needs.

Answering a question on notice from House of Representatives Standing Committee on Economics deputy chair, Andrew Leigh, the regulator said there were “pros and cons to purchasing life insurance through both ‘individual advised’ and ‘group super’ channels, as they are designed to suit different needs”.

Related News:

Leigh had pointed to APRA data suggesting that a higher proportion of group insurance TPD claims were paid compared to advised claims, suggesting that those buying TPD through group were getting back almost a dollar in the dollar while those going via the advised channel were getting back only 50 cents in the dollar.

However, the regulator made clear that other factors needed to be taken into account including reduced premium revenue in the group space.

“APRA sees the value in both group and individual policies, and notably, APRA urges caution in interpreting the claims paid ratio information in our statistics as a measure of consumer value or product profitability,” the APRA answer said.

“There are two primary reasons why the claims paid ratio, for both death and total and permanent disability [TPD] cover types, is higher through ‘group super’ than ‘individual advised’,” APRA said.

“Put simply:

  • Individual advised policies have higher reported premiums than group super policies owing to higher acquisition costs. This means that individual advised claim payments are a lower percentage of the premium, and therefore the claims paid ratio is lower.
  • Group super insurance premium revenue has reduced significantly over the last year, whereas the claim payments continue to relate to a proportion of historic claims (when insurance cover was significantly higher). This results in a higher claims-paid ratio.”



Recommended for you

Comments

Comments

I really don't get this assumption that a higher claims paid ratio is better for consumers.

If every insurer paid out every claim application they ever received, regardless of whether it was proven to meet the policy conditions, they would then have to increase premiums for every other policy holder moving forward to cover the additional claim costs. This is exactly what has happened with mental health claims for IP policies. Insurers have been intimidated and emotionally blackmailed into paying questionable claims, and as a result premiums have skyrocketed.

Surely it is better to have an insurer that places more emphasis on fairness and sustainability for all policyholders. There will always be people who attempt to claim on insurance for things that aren't covered by their policy, or for which they don't have legitimate proof. Insurers with very high claims paid ratios are also likely to have very sharp premium increases moving forward.

Further proof that Andrew Leigh doesn't understand the detail before opening his mouth.
Andrew Leigh would like to see everyone sucked up into the Industry Super machine and cop a compromised low level Any Occupation TPD definition that upon claim payment may have the potential of ceasing the ongoing claim payments from an included Income Protection Insurance benefit depending on the fund and the insurance structure.
Often I have seen cases that in the event of a TPD benefit being paid under some superannuation funds, the IP component will cease.
If the member has elected to extend their IP cover from a standard 2 year benefit to age 65, then the potential negative impact of this is enormous.
This is especially dangerous when the TPD Insurance cover may only be $100K or $200K for example but the IP benefit is $5000 per month with a maximum benefit period to age 65.
If the disabled member is only 30 and is deemed to be permanently disabled, they may receive the $200,000 TPD benefit (if they are disabled from any occupation at all) and may have to forgo the 35 years of IP benefits if it is offset against the payment of the TPD benefit.
At $5000 per month for 35 years, this potentially could remove income payments of $2,100,000.
Does Andrew Leigh understand this detail or does he simply just want to have a crack at financial advisers and try and justify that it is better to have your insurance cover under group or superannuation ?
He needs to engage his brain before opening his red ragging Labor socialist mouth.
What a fool.

Could someone please advise Andrew Leigh that Group Life premiums are around 50.0% higher than equivalent retail product premiums!
Could someone please advise Andrew Leigh that TPD premiums in Group Life covers are approximately 30.0% higher than the equivalent retail product.
Could someone please advise Andrew Leigh that retail TPD does not have to satisfy a tight "condition of release" like they do in Group cover in superannuation.
Could someone please advise Andrew Leigh that Group TPD cover if claimed as a Lump Sum before age 55 is subject to 23.0% lump sum tax.
As a stand alone retail product where the premium is not claimed as a tax deduction, there is no tax liability on the claimant.
Mr Leigh, it would be helpful if you got your facts right !

Add new comment