Income protection insurance premiums increases are likely to continue but new products, along with the industry working together, are needed to get the pricing right, according to a panel.
Speaking at the Association of Financial Advisers (AFA) conference, AIA chief executive, Damien Mu, said volatility in premiums had not been a “friend” to the industry and was not good for the cost of an advice business, not good for relationships with clients, and not good for the cost of the industry.
“But the reality is the one particular area we will continue to see increases is in the current income protection book. We're going to close that book but that book is going to continue to deteriorate,” Mu said.
“We're going to really focus on how we work together to either move clients to a more sustainable product, or how do we manage the inforce book. I think we're going to see a few more years yet of some potential increases on income protection for sure.
“We've seen a far more stable experience on lump sum and we're not expecting that same volatility. Although in trauma, it is an area that you know, the market has seen and is asking whether we need to make some changes ahead seeing the same cycle with income protection.”
TAL chief executive, Brett Clark, said there was “no joy” for anyone when it came to the premium increases the market had seen as it eroded confidence from customers and in the advice process.
Clark said the increases had been a result of increased claims experience and lower interest rates which had not helped the sustainability of the life insurance industry.
“We've seen billions of dollars of losses and then pricing responses have followed. However, we can't be in a situation where price keeps chasing these sorts of industry losses, we can't continue to go on like we've been going on.
“The intervention that APRA [the Australian Prudential Regulation Authority] has made and the changes that industry are making as a result are sorely needed and frankly, long overdue. Now is the time we all must collectively come together to get this right,” he said.
“This is because income protection insurance or disability income insurance in particular is the core risk management and insurance tool consumers use to protect their most important asset – their ability to earn an income – and we have to get this right for them.
“I’m a little optimistic that we may have seen or towards the bottom of the industry losses and that hopefully means less pricing pressure in the future as well.
“But time will tell and we'll see how that plays out with the new products, which you'll all be seeing either now or in the very near future and are going to be an important part of riding the ship around income protection insurance.”