Life insurers ‘irrational’ practices need to stop

The life insurance industry has made irrational decisions borne out of the competitive nature of insurers and shorter income protection benefit periods are needed to reduce premium increases and uncertainty, according to a panel.

Speaking on a panel at the Association of Financial Advisers (AFA), PFS Consulting principal, Ian Laughlin said the changes being made to premiums “had” to work if the industry wanted to survive and thrive.

“As we all know, this industry has a competitive streak, which can drive it to do rather, I'd say irrational things, and one of the things it has to be alert to is the possibility that will happen again,” he said.

“Everybody will behave sensibly for a little while but then we'll start to see some changes that are not rational.

“I think a combination of APRA [the Australian Prudential Regulation Authority] and ASIC [Australian Securities and Investments Commission], and maybe the Actuaries Institute will be needed to wave the flag when that starts to happen to keep us everybody on the straight and arrow.”

Integrity Life Australia managing director and chief executive, Sean McCormack said no one was winning in the life insurance ecosystem and that for level premiums it was the longer benefit periods that caused greater uncertainty.

“The greater the benefit period, the greater the uncertainty with respect to occupational societal changes, therefore, the greater the risk of future premium rate increases. It's just really hard to predict how those changes will impact experience over a 20, 30 or 40 year policy duration,” he said.

“For level premiums for me, I think it will depend in part on the outcome of this five-year term review, which we know is that the third phase of these changes which will come in in a year's time. I think it's going to be really challenging for an adviser to recommend a level premium product, when the policy may be only held for that five-year period.

“Having said that, there's still a huge need to protect clients long-term needs with level premiums. But I think what we're probably going to see is the evolution of more fixed term premiums if this five-year term comes in, and as we work towards the implementation of the five-year term, having greater premium rate certainty for that period will become more important.”

He noted the industry needed to consider shorter-term benefit periods such as two or five years for income protection and couple it with total and permanent disability (TPD) insurance given to reduce the benefit uncertainty.

“That will give the client protection against future premium rate increases whilst also giving them protection for what's most important here, which is that when sickness, illness, accidents and injuries strike that their insurance product is there to help them through that significantly life changing event,” McCormack said.

“That’s complex but for me the really important point here is this has to work for you for it to work. All parties in the ecosystem need to operate a little bit differently.”

McCormack agreed with Laughlin and said the industry needed to make sure it did not fall into the same trap of the past with insurers taking different risk appetites and turning it irrational practices in the quest for new business market share.

“At the same time, healthy competition is a good thing so we've got to protect that as well. I think that we also need to be appreciative that the way we've done things in the past won't work in the future,” he said.

 

 




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Incredibly, no one wants to call out the elephant in the room. A hostile regulatory environment for the last decade has made product distribution nearly impossible.
Regulation has taken default insurance away from young, healthy lives and forced advisers to focus on higher net worth (i.e. older and less healthy lives) while LIF boosted trail incomes at the cost of upfront sales.
The vast majority of the industries woes sit at the feet of the government.
Blaming competition is like blaming rats for eating each other when you trap them.

Life insurer also need to critically examine their digital underwriting fulfillment portal. WE THE ADVISORS will refuse to deal with insurer who have outdated, illogical and sometimes illegal declaration that they want advisors to attest to on client's behalf. These big brand names better insurer need to apply better rigour and perform adequate UAT with compliance oversight to ensure declarations are still appropriate, are in right place and are for the right person.

Life insurers need to stop shooting themselves in the foot by increasing the costs for in force business whilst discounting new business. I did a cancel and replace with the same insurer for a customers Life Insurance only policy the other day and he saved almost $13,000 or 40% of the cost for pretty much the exact same policy with the same insurer (csncel and replace and change of ownership from super to personal). He will miss out on the tax deductions from super owned for a year but then ill just change it back to super owned next year and keep this discounted rate.

I cannot understand why ALL insurers think this practice is ok. I suppose that is why they are looking to get rid of commissions so that clients will have to pay upfront out of their pocket to review their overpriced existing policies. What a bunch of crooks the management at these insurers are. Dont believe anything they say.

This is spot on, this is also all leading to rewrite of policies every 5 years. They will do a 5 year discounting cycle then slam the clients that renew after the 5 years with premium hikes. They shake the tree see what they can discount at that time to steal business from eachother. They are all in this together. They cry poor but they are making massive profits. They chase non underwritten group insurance which is what has stuffed up the underwritten books. I keep saying this but they dont even seperate smokers in group insurance. I can get a direct client that has smoked for years and drinks like a fish that will never be underwritten with tal for example to apply for a new aus super account for example and he will get insurance anyway, sometimes it will even be through the same company that wouldnt touch him when I applied directly. They will even throw in some tpd and ip with no paperwork or anything required. How stupid or greedy are they to allow this? This is the hole in the bucket but they are too greedy to fix it up. The executives are paid on new business inflows they dont care what happens to clients long term. Its a volume game for them. Our poor old clients are just collateral damage. As are we. Who will rewrite a age 65 ip policy for a 45 year old to a 5 year renewable one? Not me! Then what, clients lapse , they have no cover, then ill have to open up more aus super accounts and go in the back way. #ditchtherisk

"I think it's going to be really challenging for an adviser to recommend a level premium product" ha ha, it's going to be a challenge to find financial advisers who will recommend a life insurance product full stop. Karma is a bitch!

They should start by doubling the premium rates for non-underwritten default insurance through the various super funds. How can someone get cover with no underwriting for cheap rates. Those two factors should not go together. It's a race to the bottom.

We will no longer recommend insurance products. After dealing with the mind fuck that is modern insurance underwriting we only advise on amount, structure and type, but not product. Insurance companies only have themselves and their petulance to blame.

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