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”.
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.
- 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.”