APRA's grim assessment of the life insurance industry

The Australian Prudential Regulation Authority (APRA) has painted a gloomy picture of the Australian life insurance in its 2020 Year in Review, pointing to the industry experienced “a concerning decline in return on net assets”.

The APRA document pointed to the industry’s return on net assets being down to negative 6% in the 12 months to 30 June, 2020, (from 3.5% in the preceding year).
It said this represented a significant deterioration in the long-term trend and was well below the 10-year average of 11%.

“The main driver of this accelerating trend, dating from 2016, has been significant declines in total profits across both investment-linked and non-investment linked products, and a prolonged period of low interest rates,” the APRA analysis said.

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“Profitability of risk products has substantially declined in recent years. The net profit margin for 2019-20 was negative 10%, considerably below the longer-term average of around 3%.”

The APRA analysis confirmed that the result was driven largely by continued substantial losses in individual disability income insurance (IDII) and further declines in the profitability of individual lump sum and group business.

“Despite incremental premium rate increases in IDII in recent years, the combined effects of persistent adverse claims experience and the need to strengthen reserves contributed to the poor result,” it said.

 “The profitability of group lump sum and group disability income insurance also declined during 2019-20. However, it should be noted that on an insurer-by-insurer level (as opposed to an industry aggregate level), profitability can be lumpy, with downward movements driven by the timing of insurers changing their assumptions about risk and the pricing of policies."

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Meanwhile on the ABC website there is mental health lobby article about "discrimination" and "injustice" associated with some people being denied cover for mental health issues. They claim that 1 in 2 people will suffer from a mental health issue in their lifetime so it is vital that everyone can access disability insurance for mental health issues.

The mental health lobby seems to be completely oblivious to the fact that mental health claims are ultimately paid for by other policyholders. There is no insurance company "pot of gold" that all these claims can be magically funded from. Mental health claims are making disability insurance more and more unaffordable for everyone in society, and preventing them from getting affordable cover for conditions such as cancer, heart attacks, loss of mobility, loss of sight, etc etc etc.

Disability insurers need to separate out mental health cover as an optional extra in their policies, and charge for it in line with mental health claims incidence.

The ABC article headline also referred to someone who tried to CLAIM on their insurance who was declined due to mental health issues. When you read through the article it was actually someone who tried to APPLY for insurance and was declined.

Yet another example of the ABC abandoning their once proud journalistic standards in favour of a deceptive "insurers don't pay claims" narrative designed to appeal to the prejudices of their target audience.

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