Shifting community standards and expectations are driving eight new trends in life insurance which may cost policyholders over $1 billion, according to a report by reinsurance consultancy, Retender.
According to Ilan Leas, managing director of Retender and author of the report, consumer-driven trends including greater transparency, behavioural changes and pressure on life companies to pay “grey” claims will put significant price pressure on life insurance premiums.
The report explored the pricing impact of the expected shift by insurers away from always following the letter of the law when paying claims to instead asking the question of ‘Should we do it?’ when making determinations.
“The last few years, culminating in the Royal Commission, has brought to the fore the concept of community standards and expectations. It is clear that insurers and super funds will need to make far-reaching changes to their business models to cater for this shift,” Leas said.
“In terms of the impact on price, at its simplest, more claims will be paid which is great for consumers, but this naturally comes at a cost for the insurance pool.”
Retender estimated the impact may be as much as a two to five per cent one-off cost and a trend cost between two to three per cent per annum.
Overall, Retender believed that changes facing the industry will deliver improved customer outcomes, however, it called for life companies, consumer groups and other decision-makers to understand the unintended consequences of this coming shift.
“It’s easy to overlook that the life insurance industry currently pays out more than 90 per cent of claims but these four words (community standards and expectations) will be a game changer in terms of how claims are going to be assessed in the system,” Leas said.
“Some insurers and funds, however, will be in a better position than others to manage this change from a price impact point of view.
“The community expects our industry to ensure that premiums are sustainable and so we cannot take an ‘ostrich head in the sand’ approach to understanding and catering for future trends. This challenge also highlights the importance of robust benchmarking of pricing to cater for policyholder and member best interests.”