In October, the Australian Prudential Regulation Authority (APRA) released a discussion paper on the IDT project, which aims to collect data that will enable “regulators, policymakers, and insurers to undertake a more comprehensive assessment of prudential and conduct risks facing the industry”.
According to the discussion paper, this will also “deliver clear benefits to consumers through enhanced understanding of insurers’ businesses, products, and services”.
Currently, APRA said, there are “insights gaps” that limit the data’s usefulness and inhibit the “strategic drive for data-enabled decision making”.
In its response to the discussion paper, the FAAA pointed to a number of challenges faced by the life insurance industry over the last few years and cautioned that there will be flow-on effects for the broader insurance industry.
“In short, it is easy to conclude that the advised life insurance sector is in crisis. This is only part of the story, as the flow-on consequences for life insurance are equally important, with fewer new entrants into the life insurance pools and particularly in terms of younger lives,” the FAAA said.
“This will undoubtedly, over time, push up the average age of insured Australians, which will fundamentally change the economics of the life insurance business model.”
While the FAAA noted that it was responding specifically to the areas of the discussion paper that will impact advisers, it identified a range of factors that it said should be “closely monitored”, including new business volumes, discounting practices, premium increases, average policyholder age, discontinuances, underwriting, and leakage of benefit payments.
“In the context of the challenges that the changes in the environment and regulations have caused, we believe that it is essential that data collection focus on some of these key factors that provide an insight into the sustainability of the life insurance industry and the trends in the marketplace,” it said.
On the new business volumes and new policyholder numbers front, the FAAA said the focus should be on new clients into new policies, rather than increases to existing policies.
“The ongoing practice of indexing the level of cover each year, and treating this as new business, can distort the real underlying level of new business. In some cases, the rate of indexing has been much more than CPI,” the association’s response said.
APRA also needs to consider the extent of underlying upfront premium discounting, the FAAA said, possibly measured in terms of dollars of premiums that have been discounted, relative to standard pricing.
It also called for greater information on lapses or discontinuations, split between those that are partial in order to address affordability challenges and complete lapses, where the cover is either no longer needed or the client has elected to discontinue.
“We would like to see the availability of data on the reasons for discontinuation,” the FAAA said.
“We propose the establishment of some additional standard discontinuance categories such as moved to more competitive offering, no longer required, unaffordable, etc. Discontinuances should be measured in terms of total dollars of premiums and number of policyholders.”
Life insurance, the FAAA added, is “ultimately about getting benefits to those policyholders (or their families) who have suffered a major injury or illness”. In light of this, the association wants greater insight into the percentage of premiums that end up in the hands of claimants.
“There can be natural leakage from this system through the costs experienced along the value chain, some of which are well understood, however, others are largely unknown,” the FAAA said.
“Financial advisers largely do not charge for the management of claims, unless the claim is particularly complex. There are other stakeholders who do play a role to assist claimants, and can charge a significant amount for this service.
“We would support the collection of data on what percentage of the benefit is paid to a third party when a third party is involved.”
This is not complicated. The insurance pools have aged with old unhealthy lives. Young healthy lives need to be added to the insurance pool by advisers who are also young. Incentive needs to increase and administration needs to decrease, otherwise the end is near.
Great Job Canberra Pollies, ASIC, AFCA, FARSEA and the Banks & Life Co’s.
A combined successful effort to TOTALLY STUFF UP Advised Life Insurance In Australia.
A round of applause for these clowns please !!!!!!!!!!!!!!!!!!!!
100% correct.
These ‘bodies’ that are meant to uphold ‘ethical behaviour’ did a damn good job of pointing out and eradicating any ‘conflicts of interest’ full advice advisers may have had in their dealings with THEIR clients yet here we have several organisations / regulators whose very business model relies solely on FINDING or MANUFACTURING FAULT. It’s entirely based around focusing on the scratches on the windscreen – NOT the bigger picture, which is the GREAT WORK advisers do for their consumers.
These regulators have huge faults themselves in the way they conduct themselves but fail to see that. Instead, they spend their entire working weeks focusing on looking for nothing but fault! Who does that? Would ANY relationship in life ever prosper under such strain?
This is why I believe OUR industry is in such a CRISIS STATE
The appointment of John Trowbridge by the Liberal Govt to come up with a proposed flawed remuneration strategy, fully supported by the FSC and now Liberal Senator, Andrew Bragg as FSC Head of Policy at the time was a determined, manipulated and conflicted strategy to eliminate Independent Risk Insurance Advice.
It has very sadly succeeded and has been the single most destructive move regarding the delivery of Risk Insurance advice this country has ever seen and will ever see.
Not sure how you could rely on any facet of the government to fix anything to do with insurance or financial planning. The more they are involved the more they continue to introduce poor policy.
I would say the insurance industry was much stronger prior to the introduction of LIF.
Was it what! It was thriving with billions in new policy sales. It went from over $2B in 2016 down to $700M last year or the year before as a direct result of this complete interference disaster.
As an FAAA member, I am very disappointed in their ability to be out in front of any of the problems facing their members. They just seem to have limp lettuce reactions to the challenges that keep blindsiding them. It’s like they are just happy to collect their pay cheques, while looking for their next managerial gig.
Bill, what are you talking about? How is your comment relevant to this article? At least the FAAA are setting out their concerns about the life insurance sector, and talking about what market intel APRA should be collecting.
You should have spent your hard earned with the AIOFP then!!!