Leigh blasts ‘massive differences’ in retail insurance payouts

In a hearing of the committee last week, deputy chair and Labor MP Andrew Leigh questioned APRA around the release of its latest life insurance claims data, which revealed higher claims admittance rates and claims payout ratios for group insurance products compared to individual advised insurance.

“I'm struck on those figures by the massive differences across the sector. For example, among individuals who were advised, the claims payback rate is 81 per cent for TPD [policies], compared to 91 per cent for group super,” Mr Leigh said.

“In the case of accident, it's as low as 55 per cent among those who were advised. This doesn't paint a great picture for people who go to an adviser and buy life insurance, does it?”

However, APRA executive board member Geoff Summerhayes said the comparison was not that simplistic, due to the fact that advised insurance policies often involved complex underwriting procedures.

“I’m not sure whether that’s the right conclusion to draw – adviser products are fully underwritten products, so they are usually for large sums and they require medical underwriting in most instances,” Mr Summerhayes said.

“That's why you would see higher payout ratios than products bought directly, which in some cases are underwritten at the point of claim where they have to substantiate issues, as opposed to being underwritten at the point of underwriting.

“The number you’re quoting, I’m happy to look at that, but that intuitively doesn’t sound right to me.”

Mr Leigh pointed to further differences in the claims payout ratios of each channel, saying that “group super [insurance] has a claims paid ratio of 95 per cent and advised insurance has a claims paid ratio of 49 per cent”.

“So you're getting back almost a dollar in the dollar when buying TPD through group super, and you're getting back about 50 cents in the dollar buying it on the open market via a financial adviser. It does seem that this is a significant difference between the sectors,” he said.

In the release of its claims data earlier this month, APRA cautioned not to interpret the variance in statistics between the different channels “as a measure of value or consumer profitability”, saying that both direct and advised products had higher acquisition costs associated with their products than the group category.

Mr Summerhayes said the regulator would provide “a fuller explanation” around the data in responses on notice to the committee.