Life insurance companies have too often adopted questionable practices because they have been driven to score well in product ratings to attract business from advisers, according to an Australian Prudential Regulation Authority (APRA) senior executive.
APRA deputy chairman, Ian Laughlin has told the Actuaries Institute that he believes the life industry’s focus on sales and distribution has tended to lead to the adoption of unacceptable practices that are likely to lead to poor performance over time.
He said these practices included product features being “added at no cost or with little analysis of impact; definitions that are open to interpretation or prone to obsolescence; various basic problems with underwriting and claims management; and a lack of information to support proper analysis”.
“The advent of questionable practices often has been driven by the desire to score well in product ratings (by “ratings houses”) in a bid to attract business from adviser,” Laughlin said.
“Not only can this undermine sound insurance management, but it often will result in features that are not necessarily needed or wanted (or understood or appreciated) by the customer.”
Laughlin also referenced the development of directly-marketed insurance products through television advertisements.
“Advertising has largely driven the growth in this business, and experience has been poor in a number of respects, though in more recent times the industry has taken steps to address some of the poorer practices which contributed to this,” he said.
