Advisers key post-APRA life insurance intervention

APRA has resumed its intervention into the life insurance market after it raised concerns around sustainability of the market. The intervention, initially launched in December last year, was put on hold through COVID.

APRA has asked the insurers to launch products that meet customers needs, that give some level of stability around premiums over time and are viable from the insurer’s perspective.

Life insurers lost around $3.4 billion over the last five years through the sale of disability insurance income to individuals, rather than through super.

The regulator escalated its response to the problem after it requested action from the industry in May last year and life insurers reported further losses of $1 billion.

Speaking at the AFA Vision Conference, MLC chief of life insurance Sean McCormack called the guidance from APRA a “substantial reset in product design”.

New products are expected to launch over the next nine to 18 months, but the insurers aren’t yet aware of how their competitors will respond to the regulator’s guidelines.

TAL chief executive Brett Clark commented that as insurers roll out new products, advisers will be essential for clients to navigate the upcoming period of change.

“I’ve heard some commentary around if … the current suite of products disappear, then that in some way diminishes the role of advice. If anything, this period of change dramatically increases the role of advice and the importance of advice because there’s going to be real difference in the market,” Mr Clark said.

“There’s going to be real differences in what is on-sale versus what is off-sale in enforced portfolios as well, there’s going to be trade-offs across probably higher pricing on enforced products, lower pricing, more sustainable, reliable pricing on new products. There’s actually a bigger role for advice here, a much bigger role given the change we’re about to go through.

“I think it creates a great opportunity for different conversations with clients.”

Referring to product design, Mr McCormack commented, “The core issue is affordability.

“Now how do we get back to a more sustainable product design that’s going to look different to what it was, or even what it is today that has the benefit of greater affordability? More sustainable and affordable premiums, I think, are going to be something that’s really important as we reset the industry on a new paradigm.”

Justin Delaney, chief executive of life and investments at Zurich Australia, added that product designers aren’t able to look at what the market is doing, rather, they’ll have to consider what is needed, which will hopefully represent something different for customers and advisers.

He reflected on the lead-up to APRA’s intervention.

“I think one of the things that really impacted our ability to change over time has been the amount of change we ‘ve been coping with from LIF, through to distribution changes as well,” he said.

“And the basis for competition diminished into really being features and price, and they were the two things that started to drive what we could control.”

Meanwhile Damien Mu, CEO of AIA Australia and New Zealand, noted there is a disconnect or lack of engagement from the broader unadvised market – which led to insurers pushing innovation and trying to do more to show value to customers, at the cost of their own viability.

“APRA was right to intervene when it did, because the industry was not working fast enough,” he said.

“We’ve got to recognise that some of that innovation wasn’t in the best interest of sustainability, that competition has driven that and we need to get out from behind relying on the advisers who have to do all of our advocating and actually demonstrating value, which is life insurance is a community good and we’re there to serve Australians.”