Life insurers still suffering disability drag

The profitability of disability insurance products continues to drag on the Australian life insurance industry, according to the latest data published by the Australian Prudential Regulation Authority (APRA).

The March quarter data reveals a 65.1 per cent decline in net profit after tax for the year ended 31 March, with the major contributor being individual disability income insurance, which was down $219 million over the 12-month period while group disability insurance was down by $50.3 million.

However, while the year on year data remained negative, APRA’s analysis pointed to an improvement in the quarter data, with net profit after tax at $523 million significantly up from the $529 million loss in the previous quarter.

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It said the main drivers for this quarterly improvement were favourable movements in financial markets along with “the discrete write-off of goodwill that negatively affected the results in the preceding quarter.”.

The APRA analysis said risk products recorded a combined profit of $124 million for the quarter with Individual Lump Sum standing at $334 million; Group Lump Sum $59 million; Group Disability Income Insurance (DII) a $50 million loss; and Individual DII a $219 million loss.

It said profits for Individual Lump Sum improved by $237 million over the quarter, caused by reductions in operating expenses and the effective movement in net policy liabilities.

“On the other hand, Individual DII continued to report losses, driven by a significant reduction in discount rates and a recognition of persistent adverse claims experience,” the APRA analysis said.

“For the 12 months to March 2019, risk products reported an after-tax loss of $94 million, significantly down from a profit of $1.3 billion. All risk products deteriorated, particularly Individual Lump Sum and Individual DII. This deterioration is mainly driven by loss recognition caused by persistent adverse claims experience,” it said.

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Unfortunately mental health claims are gradually killing off income protection insurance. It is not sustainable for IP policy holders to pick up the ever increasing costs of questionable mental health claims that insurers are powerless to contest for fear of the mental health lobby. If mental health is the community wide pandemic its lobbyists promote, its costs should be funded by the government. Mental health should be excluded from IP cover, with premiums reduced accordingly. If any insurers allow individual IP policyholders to voluntarily exclude mental health cover for a reduced premium please shout out. Most of my clients would switch in an instant.

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