Market share chase fuelling life insurance losses

PPS Mutual chief executive Michael Pillemer said while factors such as increased mental health claims had partly fuelled the recent billion-dollar losses incurred by life insurers, this could also be attributed to the companies’ pursuit of short-term strategies to inflate market share.

“Some of the practices insurers have been engaging in as part of the market share chase have contributed to the problem – front-loaded discounts are emblematic of the poor practices that have contributed to these results,” Mr Pillemer said.

“Others are soft underwriting by insurers and the underwriting deals that have been created for special customers or advisers.” 

Generous product terms and features can be priced for if they are appropriate and meet the needs of the client, but if you’ve got these deals that advantage new customers at the expense of loyal customers, these are some of the problems that we need to ensure don’t continue to undermine product sustainability.”

Mr Pillemer said APRA had been forced to step in with its recent reforms to the income protection market, as insurers were too afraid of losing market share to create more sustainable income protection products on their own.

“With APRA’s recent income protection reforms, it’s been focused on the generous product terms offered and particularly on the first mover reluctance to wind back terms, despite fear of the unsustainability of losing business,” he said. 

“That is a valid assessment, particularly where design issues provide a disincentive for the claimant to return to work.”

Mr Pillemer said the large insurers’ short-termism had ripple effects on the adviser market, with risk advisers having to explain massive premium increases to clients and being increasingly restricted by regulatory change.

“Unfortunately a lot of the advisers have borne the brunt of what’s happened with the market share chase rather than the blame being laid at the feet of the insurers,” he said.

“Most advisers have been doing the right thing by their clients and they are going through an incredibly difficult time with the pandemic, the losses the industry is incurring and repeated increases in premiums coming in, the APRA reforms and the LIF changes.

“Those who have been around for 30 years plus have said this is by far the most difficult period that they’ve encountered.”

The comments came following PPS Mutual’s annual profit share announcement that saw members of the mutual insurance company collect a 7 per cent share of annual premiums and 4.5 per cent of their opening balances.

Mr Pillemer said the idea behind the profit share scheme was to build a “self-reinforcing cycle” where member lapse rates remained low, leading to improved profits and lower premiums.

“You’ve got a model where the policyholder is a member and owner of the business so they are getting to share in the profits, they are happier, they are sticking around and once they are building up this profit share their retention is greater,” he said.