Group life used to undermine insurance advice
Cheap group insurance cover has partially eroded the client base of financial advisers with industry funds using it as a means to retain members drifting to self managed and retail superannuation offerings.
Estate Forethought director Bill Brown made the comments following the release of the annual report Australian Prudential Regulatory Authority (APRA) which claimed life insurers had engaged in unsustainable pricing and underwriting practices in the area of group insurance.
“Insurers abandoned individual cover for group cover and claims went up and costs went up. The availability of cheap group cover through not-for-profit funds attacked the client base of advisers, as it was meant to do,” Brown said.
He stated that APRA should have made its warnings two years ago and with more force as the offering of default cover without underwriting was being propped up by advisers feeding insurer’s statutory funds.
“Cheaper group rates were never sustainable without the underwriting of default cover. However once you remove default cover you take away the industry fund’s main selling point,” Brown said.
“If insurers properly underwrite all group business, then group premiums must increase. The only way that the group premiums can then be cheaper is if the super fund does more of the administration and the claims.”
“Ironically, the strength of insurers which permitted this frolic into non-underwritten group was done on the back of insurer Statutory Reserves, put there by the efforts of those same advisers who continually brought in new, younger clients to bolster the Statutory Fund of each insurer.”
Brown said insurers were again targeting younger people in the retail sector, as they were less likely to make claims in the next two decades but efforts to recoup immediate losses in the group life area had led to rates going up on in-force group policies.
He also stated that losses in the group life area had caused insurers to look at other areas of losses, including lapse rates, without coming to a common consensus as to what constituted a lapsed policy.
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