Life insurance industry loses $1.8b

The life insurance industry has lost $1.8 billion after tax for the one year to March 2020, driven by poor performance of risk businesses and a substantial collapse in investment revenue owing to the COVID-19 related volatility in investment markets, according to data. 

The Australian Prudential Regulation Authority (APRA) data found the loss was a significant reduction from $759 million profit the previous year.  

The data also found that compared to the December 2019 quarter, the March 2020 quarter was down 798.7% in terms of investment revenue. Compared to the March 2019 quarter, investment revenue was down 88.4%. 

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“All risk products deteriorated with the only exception being the individual lump sum product,” APRA said. 

“In particular, individual disability income insurance (also known as income protection insurance) reported a substantial loss, primarily driven by loss recognition as adverse claims experience persists.” 

Individual disability income insurance lost $1.4 billion, over the year to 31 March, 2020. 

Risk product net profit after tax for the life insurance industry over the year to 31 March 2020 

Source: APRA

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Unfortunately the adverse DII claims experience is likely to worsen as people who lose their jobs through COVID make "mental health" claims. Australia's so called "mental health crisis" is being disproportionately funded by DII policy holders, via constant large increases in premiums. This is unsustainable. Mental health needs to be excluded from DII.

Agree that DII has been too generous to date and investment returns are poorer but insurers and the FSC have to take a large proportion of blame.
1. Since the LIF these insurers have been increasing existing customers DII premiums are unprecedented levels BUT have been reducing DII premiums for new business trying to encourage a churn issue that was not there in the first place. If DII is losing money why are they reducing new business premiums??
2. Due to the LIF and point 1 above. New business has fallen off a cliff. Advisers can't afford to write it and coupled with a huge increase in cancellations, underinsurance and lapses have worsened. The LIF has been a complete failure.
3. Insurers costs. Ludicrous salaries and bonuses. When you have execs earning double that of brain surgeons and BDM's more than doctors even when new business is down and negative profits you know there is a fundamental rot from the top down.
4. Focusing on new business above anything else. Group insurance mandate biding that are loss leaders from the start just to hit targets and make bonus.
5. Loss of junk direct selling. Insurers flogged junk insurance directly and profited from this. They were quite happy to throw advisers under a bus and increase direct junk but the RC but a stop to that. They are now reliant on the same advisers they let down with the LIF at a time when advisers are leaving in droves due to over regulation, qualification and yes the LIF.

What a success LIF has been!

Insurers need to increase their insurance pool. Get Advisers back writing quality underwritten cover. With the amount of compliance there is not much reward for writing RISK. Wind back LIF and introduce some stability in premiums, so clients do cancel due to bill shock.

With Group cover, I am always astounded why insurers offer cover without any underwriting. If they are going to do this, the premiums should be much higher, especially when compared to retail as the insurer knows the risk they are taking on and can exclude/load conditions to reduce risk.

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