Life insurers still weighed down by disability products

30 August 2019

New Australian Prudential Regulation Authority (APRA) data has starkly revealed the challenges being face by Australian life insurers with net profit down significantly due to the poor performance of risk products, particularly disability insurance.

APRA’s June quarter Life Insurance Performance statistics revealed what the regulator called a significant reduction in profit from $535 million in the previous quarter to just $272 million in June.

It said total assets decreased by $31.5 billion to $200.5 billion, predominantly due to OnePath Life Limited conducting a on-off transfer of assets and liabilities from the life insurance company to its superannuation.

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ANZ’s OnePath pensions and investments business is currently the subject of an ongoing transaction with IOOF involving oversight by APRA, while the OnePath Life business was sold to Zurich.

The APRA analysis said that net profit after tax for the 12 months to June was also well down, standing at half a billion dollars compared to $2.1 billion for the previous corresponding period with the deterioration primarily caused by poor performance of risk business.

The regulator said risk products recorded a combined loss of $208 million for the quarter with individual disability insurance recording a $349 million loss, with group disability insurance recording a $36 million loss.

The only real bright spot for the sector was that individual lump sum showed a $199 million profit while group lump sum recorded a comparatively modest $23 million loss.


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And the reason why disability products have performed so poorly is a blowout in mental health claims. The sudden "mental health epidemic" of recent years is placing an unsustainable cost burden on disability insurers and policyholders.

If mental health really is the debilitating mass affliction its lobbyists claim it to be and encourage people to self diagnose, it needs to be excluded from private disability insurance and separately funded by the government. Insurers need to give all clients the choice to exclude mental health cover from their policy in exchange for reduced premium.

Well, I guess ASIC can wear some/most of the blame here. Legislating a large reduction in commissions, and more red tape that makes giving risk advice an expensive exercise with little reward. Life insurers need to get more people on their books and increase their new business inflows..... Instead we get more red tape.

Can't say I have a lot of sympathy for the insurers here. They have been increasing disability premiums on existing customer but are able to discount disability rates for new customers. Then they wonder why their lapses are increasing.
Owing to the LIF advisers have also stopped writing new business which is now unprofitable.
This mess was created by the insurers via the FSC and by ASIC so they need to accept the inevitable consequences.

Not to mention that the IP terms and conditions are so relaxed it's impossible not to claim, even when a person is able to return to work. The industry is not sustainable when advisers and customers use the policy as a retirement plan instead of cover when its needed.

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