Life/risk industry complex and unprofitable

The life insurance industry is a complex, unprofitable marketplace with premium rates which are becoming unaffordable for many consumers, particularly older ones, according to Rice Warner.

The research house’s latest analysis said there was evidence that many people were cancelling their policies due to the premium shocks, so healthier lives were neglected which could make the overall experience worse.

Rice Warner pointed to data from the Australian Prudential Regulation Authority (APRA) that said the life insurance industry had lost $1.5 billion over the last four years on retail income protection policies.

“This has occurred during a period of stable economic and employment conditions – conditions under which these policies ought to be profitable.  The industry has responded by ramping up premium rates by 30 per cent or more, yet the losses continue.  Something must change,” the analysis said.

VIEW ALL

View all

Rice Warner said in recent years, insurers had been in an arms race to release more options and cover variants to the market with the aim to meet as many potential customers’ needs a possible.

“However, this has led to product definitions becoming more lenient and proliferation of benefits without the necessary adjustments to product pricing,” Rice Warner said.

“Further, some ailments such as mental illness have increased in duration and led to higher claims. These factors have had a significant impact on claim rates and, in turn, on profitability. 

“While this has led to a few years of sharp premium increases, there is no sign that the portfolios are becoming more profitable (or that losses on disability income have been stemmed).”

The analysis noted that in the group market, poor profitability fuelled by a price war was addressed relatively quickly through increased premiums and changes in terms.

“The retail market has a similar problem but it has been slow to react – constrained by guaranteed renewable terms with the added problem that competition for market share has dominated and overridden the need for sustainable profitability.  Something must change,” it said.