Online attendees at this week’s FSC Life Insurance Summit heard numerous industry leaders discuss the substantial challenges facing the life insurance sector.
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TAL Chief Executive, Brett Clark, explained that life insurance differs from many other industries because it takes a long-term view, writing policies to cover people for their entire lives. “Our role will be long lasting in the claims that we pay to our customers. That’s the most important thing we do as an industry. [The industry paid] $11 billion1 in claims over the past 12 months and we expect to see that and more claims in the future. So it’s important for all of us, our customers and the community we serve that we are financially strong today to meet the claims we need to pay now and in the future as well.”
Life insurers cannot operate as charities, said FSC Chief Executive Sally Loane: “The ongoing viability of life insurance companies is supported by the capital of shareholders that can and should expect a sufficient return for the risk they take on, by doing business.
“This can only be sustained for current and future generations if insurers are financially resilient and capitally strong, now and in the future.”
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Availability
A healthy life insurance sector requires the availability of products designed to meet diverse community needs, according to the former President of the Actuaries Institute of Australia, John Trowbridge: “Distribution in financial services is key to success for both consumers and suppliers, but what we’ve seen is a large decrease in the number of advisers in life insurance in the past couple of years. This means there is a lot less access to life insurance advice.”
To ensure middle Australia has access to advice, Trowbridge called upon ASIC and government to restructure the renumeration regime for advisers. “There are people who say there should be no commissions but the reason you need some kind of payment from the insurer is that the customer will not pay a fee for advice.” He said advisers need to be supported adequately to deliver the advice that the community needs.
ASIC Deputy Chair Karen Chester responded, saying there are “a number of reforms coming through” and that, in ASIC’s 2021 Life Insurance Framework (LIF) Review, “we’ll be looking at how the industry has responded to the [recent] legislation changes and whether there is a better alignment of interests such that the government can determine whether there are any further reforms required to commission arrangements.” Chester also said she hoped the new design and distribution obligations would make target market determinations easier.
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Affordability
A sustainable life insurance sector also requires affordability of cover so that protection is accessible to as many people as possible. “For us as an industry and regulators it’s really important that we ensure that good life risk doesn’t become the domain of just the very, very wealthy,” said Sean McCormack, Managing Executive, MLC Insurance. “It’s there for the many. We don’t want it to become the domain of just the few.”
McCormack said the industry can work collectively on reducing the cost of fulfilment and helping make the process as efficient as possible. “We did some research with Planning For Life last year that found the cost of advice needs to reduce by 20-25% for life risk advisers to remain profitable. So it’s encouraging to see ASIC start consultation with the industry to see what steps could be taken to reduce the cost of advice.”
McCormack described ASIC’s LIF Review as “a big opportunity for us to make sure that we talk about the consequences of further changes to the remuneration model for writing life risk insurance.” He also said simpler products with lower premium rates presented another big opportunity for the industry.
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Assurance
A healthy life insurance sector provides assurance of claim payments when they're needed most. John Berrill, Principal, Berrill & Watson Lawyers, said many consumers have had good experiences from life insurers in recent years. He pointed to APRA data showing high success rates of claims for group insurance and some retail lines, with claim times also coming down.
However, the Chair of the Life Code Compliance Committee, Anne Brown, said that claims handling remains a pain point for consumers and many insurers had been slow to adopt and comply with the Life Code in the areas of claims and complaints handling. “We accept the timeframes in the code are aspirational and that a number of industry participants are meeting them in the majority of cases but, also, a number of participants are falling quite badly behind. In the past financial year more than 60% of breach allegations that we dealt with related to claims handling.”
Brown said many of the non-compliance issues stemmed from inadequate training and education of front-line staff about why and how the Life Code needed to be adhered to. She also cautioned that “self-regulation is a privilege and not a right – and that comes with responsibilities.”
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Optimistic outlook
While acknowledging the undoubted issues that the industry faces, especially during the COVID-19 pandemic, AIA Chief Executive Damien Mu concluded on a positive note: “There is a real message of hope here. Hope is optimism grounded in fact and truth. And we know from the research we have and the experience we have as a collective life insurance industry that there are things we can do to support Australians to help them during this time.”
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1 APRA quarterly life insurance performance statistics for the 12 months ending 31 March 2021.
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