At the Australian Prudential Regulation Authority’s (APRA) annual life insurance CEO roundtable last month, the industry participants discussed the impediments to innovation within the longevity solutions space.
According to APRA, the industry stakeholders identified “weak demand” as the key challenge that is holding life insurers from “providing and/or further innovating longevity solutions”.
“Stakeholders also highlighted that the complexity of the retirement ecosystem provides limited incentive for retirees and makes it challenging for insurers to design longevity products that are well-integrated within the system,” the prudential regulator said.
“Those factors, combined with distribution challenges (e.g. falling adviser numbers, high cost of financial advice and barriers to scale up advice) has, based on APRA’s bilateral engagements, hindered take-up of longevity solutions for retirees that have a genuine need.”
APRA added that at the roundtable, there was a “general consensus” among life insurers that an increase in demand for these longevity solutions is necessary in order for there to be a business case to invest in, and accurately and sustainably price risks.
The participants noted that limited awareness of longevity products, misconception about longevity products, and a “nest egg” mindset were key factors that are limiting demand among Australian consumers.
While APRA acknowledged that there is no “silver bullet” to increase demand, it said life insurers can play an important role in “leaning into the challenge”.
Based on its overseas study, the prudential regulator noted that countries with a high level of take-up of longevity products are those with a “strong level of compulsion or incentive provided by the government”.
“Participants commented that there is a genuine need for longevity solutions for certain cohorts of retirees, but those needs are often not recognised by the retirees,” APRA said.
“APRA was encouraged to hear that some insurers are proactively engaging with trustees on their retirement income strategies and taking steps to improve awareness and understanding of longevity solutions, including developing educational materials for superannuation members.
“Such collaborative effort will make a positive difference to improving member engagement and financial literacy, an area identified as a key challenge by trustees in the pulse check on retirement income covenant implementation.”
If demand was addressed, the roundtable participants said there would be “sufficient capital and support from life insurers’ parents” to back longevity solution offerings.
According to the life insurers, there is also hesitation around innovation in the space because the current legislative settings “limit the ability of insurers to rationalise legacy products and that this stifles innovation”.
“Establishing a legacy rationalisation mechanism would allow insurers to innovate safely and manage products which no longer meet member needs. Whilst APRA sees potential merit for such a mechanism, APRA encourages life insurers to take a considered approach to product development, based on meeting retiree needs and supported by a robust business case,” APRA said.
“Participants also noted that there are elements of APRA’s capital framework that are more constraining relative to other capital regimes but recognised that the demand challenge is the key in unlocking the longevity market. APRA acknowledged that capital settings have an impact on the supply of longevity products, but there are prudential considerations for APRA in balancing the financial resilience of life companies with commercially viable innovation.”
Oh wow what a surprise! It has taken this overpaid, ill-informed bunch of bureaucrats, and politicians who seem to think they know it all, all this time and tax payer money to come up with something advisers were saying 10 years or more ago.Did they listen no, are the listening now probably not, and will they listen in the future its doubtful. They think they know best but all they seem to know is how to preserve their own positions, milk the tax payer for more and more money, cost the consumer incredibly unnecessary complexity in advice documents, create more red tape, less competition, waste a huge amount of time, force up the costs of running Financial Planning business, ruin or deplete the value of adviser businesses with a real care factor of zero, and never an admission they had it wrong. All done under the guise of consumer benefit. What self indulged rubbish
According to APRA, the industry stakeholders identified “weak demand” as the key challenge that is holding life insurers from “providing and/or further innovating longevity solutions”.
What a bunch of Nero’s, fiddling away as the state burns around them. That “weak demand” is there because all the vested interests in the life insurance industry, from which everything else feeds, attacked the source of that demand with high vigour and christian righteousness, substantiated by donations to the political coffers. And just like the Crusades, they had two cracks at preserving their religion:LIF, and FASEA
LIF, what a disaster, where all the vested interest coalesced, and no one bothered to consult with advisers who could easily have told you that it was a stuff-up in the making.
Fasea, a good idea, if only for this stupid university level exam imposed on a mature workforce.
And then there’s good old Apra. Totally disconnected from the advice industry and have never regarded advisers as stakeholders. “Not their problem”, unlike the old ISC who consulted regularly on an informal basis as to the views of advisers.
Apra was so disconnected from the Risk adviser workforce that they allowed a rump to take over their normally placid board and deliver to us what was the “nuclear option” of the 2021 changes to income protection, and then wondered why risk specialists, having read the draconian provisions in the FASEA code, decided it might not be a good idea to acceed to Apra’s requests to replace existing IP business with the rubbish that came to us in 2021.
For the 10 years leading up to 2020, Apra chose not to act on a very obvious practice that many life insurers were not accurately costing their IP products while seeking to maintain market share, and Apra, believing the ill-advised information provided by insurers, resolved to believe that IP was always sold on price rather than quality, then forced the changes that denuded clients contractual right to claim in massive chunks.
But, like ASIC, Apra have managed to pull the eyes over ministers who could not read more than two pages of print, and also .distracted and disconnected Treasury advisers
And finally there’s those leeches that pose as the CEOs of life insurance product manufacturers, focusing only on shareholder value and the associated CEO bonuses. They still think they can get away with Duration Based Pricing on new business and gouging premiums on existing policyholders, just to replace lost premium revenue.
For just a little bit longer. Keep your ears open boys, the train is acoming!
Remunerate advisers to build businesses that can justify the cost to reinvigorate this part of our industry. The correct number is 80/20 with one year clawback that does not include claims. Take it from someone who has run a successful life brokerage for 42 years . The industry is on its knees, and the biggest issue that of under insurance is the worst I have observed in my time. MARK DUMSFORD
It’s the statement about “strong level of compulsion by government” that worries me. The government will see its role in creating demand through legislation. They will likely model it off the old CSC fund. You can take half as a lump sum and half as a lifetime pension. Choice will be eroded. And maybe they should have thought about distribution issues before they royally screwed the advice industry.
Just another example of a regulation overstepping their role. Why is APRA wasting time on product solutions that are not popular and are limited by their own regulation Is this is why they can’t seem to find the time to investigate their union funds buddies and their decades long breaches of the sole purpose test?
Probably because the Labor government want to control the superannuation pot of gold and use peoples money for their own social projects.