Addressing the AIOFP conference in Hobart on Wednesday, the insurer’s general manager of retail distribution, Niall McConville, revealed that life insurance new business had plunged from $763 million in 2013 to $325 million in annual sales in 2020.
“This is an important part of the industry if you’re trying to get a lot of momentum in the market and build a brand and you can see how much that has changed in the last few years,” Mr McConville said.
“The market has come off well over 50 per cent.”
A significant part of the drop-off in new sales had been as a result of the banks exiting advice and restrictions around how products could be sold through bank distribution channels, with sales through bank channels dropping from $199 million in 2013 to $9 million in 2020.
“Previously people would go to a financial planner in a bank and they would put some cover in place for them, and you can see that’s pretty much disappeared completely,” Mr McConville said.
“It’s going to be interesting to know where those [customers] are going – are they just self-insuring or just not bothering to take anything out? I would say that’s probably happening with a lot of those clients.”
Sales in the IFA channel had also decreased significantly from $564 million in 2013 to $317 million in 2020, as the life insurance framework regulations made risk advice increasingly uneconomic for many practitioners.
“I would imagine that the new business numbers won’t plateau, and certainly won’t start increasing I don’t think for the next year or so at least, if not longer,” Mr McConville said.
He acknowledged that increasing sustainability issues in the income protection sector, which had seen premiums skyrocket in recent years, had also played a significant role in clients being reluctant to take out or renew insurance cover.
“Income protection has been the product that has been causing a lot of problems in the industry – it certainly has meant that many of you have been having very uncomfortable conversations with your clients,” Mr McConville said.
“The average sum insured we’re paying out is getting larger on income protection – about 20 per cent of the people we pay claims to have changed occupations since we underwrote them.
“Most of them would be in a more dangerous occupation than they were when we underwrote them, and they’re earning substantially less money when they got sick than they were under agreed value, so why would they go back to work.
“We’re also paying longer claims – from a mental health point of view they are 11-15 per cent of our new claims, and they are 25 per cent of people claiming for over nine months.”
TAL was one of many insurers that voted for LIF at the FSC table Niall…Now you are telling us what has happened since then but the real shame is that so many advisers told your company and others years ago that this would be a probable outcome of LIF. I think saying sorry we got it wrong and then actually help by stating what urgently needed changes can be made by the government to see more Australians advised about their insurance needs (again) would prove more beneficial?
Let’s also remember the inept and incompetent AFA and FPA who couldn’t comprehend nor convey the disastrous impact LIF was going to and has had on Small business, an entire industry and ultimately consumers. Less insured people leaves more queuing up for social security at the expense of the tax payer. It is incredible to see what’s happening here…
I just had a client had their premium for an agreed value, level, benefit to age 65 policy increased by 72% – in a single year.
It is the reduction in commissions, the back-loading of them, i.e. you get your money later, the extended clawbacks that are scary with up to 120% of first year premiums being clawed back (for a policy that was cancelled a few days before the end of year 2), the massively increased compliance and the higher prices.
Only the last item is probably unavoidable, more claims mean more premiums. A population getting sicker will make more claims.
All other items are stupidity in action.
Over to you, dear insurance companies. Would you like to have a future in Australia?
You can demand a reduction in compliance – utterly cost free for you.
You can reinstate up front commissions – they are cheaper for you, perhaps not cheaper than 60/20 but not much.
You can reduce the clawback back to one year – I don’t think that is very expensive for you, it just makes writing big policies an unpleasant experience for advisers and makes writing small policies less interesting as you may not only lose on writing the policy but again on clawback.
The population isn’t getting sicker. The population has figured out that contriving a “mental health” issue is an easy way to get an insurance payout. That’s the biggest driver of premium blowouts.
The only solution is to remove mental health from insurance cover altogether.
It’s your own fault. You implemented the LIF because you thought you would profit and it’s backfired on you. I don’t hear of any overpaid life company execs taking a 50% pay cut but I guess a 100% pay cut is coming. You reap what you sow.
So in the end re: insurers… “be careful what you wish for”!
The life insurance companies have no-one to blame, but themselves. They lobbied for, and won a special exception from the ACCC to act in a cartel-like manner. They immediately abused the trust which was placed in them by lying about the extent of churning, and working with ASIC to produce biased research to paint advisers in a bad light. All for what? Some short-sighted changes to boost their own coffers! Well now they have killed the Golden Goose. Give yourselves a pat on the back you fools. Soon you will all be out of a job, because financial planners are dropping life insurance advice en masse. Too hard, too complex, too risky and not enough money in it. The loser, once again, is the Australian consumer.
LIF orchestrated on the false churn issue to kill advisers to the flog dodgy direct life policies without Adviser costs.
Oops that RC really didn’t do that business plan much good did it.
Now what FSC, ASIC you’ve well and truely stuffed this one hey folks.
Hang on, it must be the Advisers fault surely.
Will someone be honest when addressing the decline in insurance sales, the main reason that advisers are not recommending ( selling ) insurance is it’s not worth their time, if your not being remunerated for your effort then why bother, the LIF reforms have really worked haven’t they
Huge congratulations to the government for killing the life insurance industry, the financial planning industry, and small business. For what? less people insured, more expensive premiums, and soon to be watered down quality of new insurance policies which will no doubt undermine the confidence of the public when more claims start getting declined.
Don’t worry the politicians and regulators will fix this. Clearly the answer is to ban insurance commissions outright! Surely that won’t completely shut the insurance sales and industry down at all.
Haha! Hilarious but will be the route they’re contemplating.