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.
Pretty easy to explain actually. Life insurers don’t see a claim until the super and pensions team vet it first.
Advisers on the other hand will lodge claims in the greyest of circumstances because they will typically not want to be the person deciding if a sick person is eligible or not. The end result is that underwritten policy claims managers see lots of people who are not disabled attempting to claim while super funds inspect a claim first and if it doesn’t meet their condition of release then it won’t be sent to the insurer. I’ll write him a letter.
So ALL working Australians have a super account, if it is an Industry Fund All come with Default Insurance, and unless a contribution has not been made within 12 months or so that will be cancelled.
Australia has a chronic under insurance problem, less than half have any insurance, TPD is less and IP is less than 5%.
You don’t have to be a Rocket Scientist to work out there will be more claims paid out in the Industry Super space by sheer weight of numbers. I would guess the biggest payouts by Sum Insured will be in the Advised space. I have had two TPD claims in the last two years, both over $1.5m.
Andrew Leigh should go and ask real people in the Industry what is happening. And to say he would eliminate risk commissions is another reason I will never vote for Labor
The major difference on “claim payback ratio” is, of course, that premiums for a Retail policies also cover the cost of advice. Take out the cost of advice and the comparison becomes more like for like. Mr Summerhayes would know this, so not sure why he didn’t tackle the issue head on.
Oh, and the irony of Mr Leigh saying 81% payout ratio on advised TPD as poor. That’s a massive loss making level of loss ratio. Add to the 81% the cost of advice (roughly 20%-25%), the underwriting and other admin costs of insurance (another 20%-25%), the cost of capital (say 10%) and we’re getting near 150%.
Leigh is a complete fool
Hmmm… funny but my experience as an IFA is very different. Clients who have come to me after failed super group life death claims (yeh, work out how that happens) have been assisted with claims being then successfully paid. My retail claims have a 100% success rate, even if they can take a while. Maybe Mr Leigh is allowing group insurance to take credit for planners hard work???
Funny how those put in charge of important public policy don’t understand the basics. Group insured products have a large pay out ratios because there can’t manage anti selection risk via underwriting rather generally offer auto acceptance on cover. Yes the insurer can load occupation but can’t default to smoker rates without incurring the wrath of regulators. Our politicians and public policy makers keep on changing their collective minds – e.g. MySuper opt-out default cover to PYS/PMIF opt-in. Is it a lack of basic fundamental principal of collective pooled life insurance or stupidity?
Summerhayes isn’t happy destroying financial planning within Suncorp, he now wants to destroy financial planning within Australia. The scary part is that he is on a UN committee of some sort so is probably dreaming up something to top COVID
The answer is so simple. The group insurance stats excludes the administration costs whereas the retail stats include them. So claims/premiums is the formula. For retail, the premiums include the admin costs so the premium is higher and the ratio is lower. If you allow for the same in group insurance (especially if cover is more than the low basic cover) its easy to see. How come the regulator didn’t say this to answer the question ?
Re differencd in dispute and payout ratios, between advised insurance and group insurance, I have one question.
How many class actions are group insurers facing?
Its been open season on advisers since the Royal Commission.
I’m sure I’m not the only one getting class action invites from lawyers on my facebook newsfeed and via website ads!
Waiting on the one against Aus Super trustees for the downgrade of TPD…. Was it really in members best interests?
To add to the point here
We’ve all heard of the billions of FUM leaving several platforms following the RC
The thousands of advisers leaving post RC
The multiple class actions by ambulance chasing lawyers that got going AFTER the RC…. (the RC being the bus that hit advisers)
Clearly this is an unusual state of affairs.
So with these comments Mr Leigh shows how ignorant he is of the adviser environment, or that he is a smarty pants who gets a kick in *only* when others are down.
If you want a true insurance comparison Mr Leigh, look at the ASIC figures before the RC (e.g. 2018 and before). They do not support the rubbish you are spouting.
Btw, where is the FPA? Grow a spine!!
Has anyone thought that maybe the Super fund denies claims before thay even get registered by the Insurer to be included in the numbers. As in advised space we put it to the Insurnace company first. Whereas in the funds space you have a gate keeper being the call centre for the Fund before it gets accepted as a claim.
I hope theregulator thinks of this one to see if that is a reason!
This is absolutely true and I saw it happen with a large Industry Australian Super fund (that shall remain nameless). The client should have been paid under an IP claim but the fund prevented it going to the insurer for assessment. We even went to mediation and the mediator agreed that the fund was not looking after the best interests of its members in the policy they had in place in this instance, yet even with this, mediation failed so the only option to have a claim paid would be to go to court. Client wasn’t willing to do that.
I think he has more issue with the insurance companies… seeing they are both the group and retail insurance companies are normally the same people I would be looking into the contacts. don’t try and blame advisers….
Andrew Leigh is a snivelling left wing git who whinges about everything constantly and will take information to benefit the unions that control the industry fund money trail to the Labor Party.
This is a clear stance to try and destroy the financial adviser just as Labor idiot Stephen Jones opened his uneducated trap last week in relation to the banning of Life Insurance commissions.