Speaking to Risk Adviser following the release of AMP’s half-year results – which saw AMP’s wealth protection division grow by 9 per cent to $99 million for the period ending 30 June 2015 – Mr Meller said the proposed changes to the life insurance industry would “essentially restore lost profitability in the industry”.
“I think if you look holistically across the marketplace over the last couple of years, I haven’t seen any insurers putting their prices down [and] I think the overwhelming trend is for increased pricing,” he said.
“What we are hoping is that these changes will put a stop to the need for that increased pricing.
“The industry typically under the current upfront model sets a price for an insurance policy on the basis that it is going to last someone between seven and 10 years,” he said.
“If that policy is going to be cancelled off after two or three years then the life insurance company is losing a fortune on it.”
Mr Meller, speaking during the presentation of the company’s half-year results, said that with the improved performance of AMP’s wealth protection business the company has had no “out of annual cycle increases in premiums”.
“[Also] we have no further increases [planned],” Mr Meller said.
“Whether over time the economics of the protection business allow us to bring prices back down, time will tell.”
“That would be our ambition for the industry as a whole over time with the changes that are due to come into force next year,” he said.
Prior to the announcement of the Life Insurance Framework on 25 June 2015, AMP was the first of the life insurance product manufacturers to mandate a change in remuneration models its advisers use for all risk advice.
Mr Meller has previously told Risk Adviser that the industry will eventually move to fee-for-service risk advice in the near future.
Hi JM, I agree with most of your points however I am under the impression that TAL on their own have estimated savings of $150 million due to the proposed changes and allocated these funds to development programs. I would imagine that the other larger insurers would have similar if not more savings and if true is hardly a drop in the ocean?
Anthony M and JM (comments below) are on to something here…
Before predicting whether or not premiums will rise or fall, as a result of the Framework changes, the industry needs to recognise the non-sustainable products it sells AND address this issue. There are several reasons for insurers retaining price and/or putting through price increases, of course – but I note JM’s second paragraph (see below) stating the significance of the recorded losses, and don’t see a convincing case for the possibility of premiums being lowered in the short-medium term.
Craig Meller has always been very funny, he’s stand up gags never fail to have me in stitches and the one is his best ever.
Meller is very unconvincing. What in the new proposals is going to increase the duration of policies? Lower commissions? Slower commissions? He does not know much. Either he has not thought things through or he has a secret reason for praising the Government.
I agree with the comment from Anthony that the life offices have built non-sustainable products. And non-sustainable products are, well, not sustainable. This means that, even with the life offices potentially benefiting from the Trowbridge changes, we should expect further price increases.
This is especially acute for Income Protection business, where the life industries declared a combined loss of $0.6billion last year according to APRA stats. The benefits of the Trowbridge changes are a small drop in the ocean against those kinds of losses. If Mr Mellor believes price rises aren’t needed for this business, then I’m not sure he’s getting the right advice.
My personal view is that Trauma is in the same kind of position, although APRA stats don’t reveal that level of information.
Distribution expense control alone will restore profitability? Does this mean that insurers are now immune from adverse morbidity or mortality experience having an impact on product pricing?
What a load of self-serving nonsense. AMP on a pedestal indeed. Is AMP looking for favours with the Government?
The bank insurers WILL be gouging on premiums, without the moderating influence of IFA risk advisers looking after clients best interests. Bet on it ! AMP of course have 3762 planners to belt around to achieve token premium savings
Why wouldn’t they – Minister Frydenberg has just given them the key to Profit City
Thankfully I am not employed by AMP and don’t have to listen to the diatribe espoused by this sanctimonious so and so…
That’s because they will have the luxury of advisers funding the profits via the “work for free” model they wish to implement. How about AMP, as the product manufacturer, actually take responsibility for building non-sustainable products and actually come up with sustainable solutions that won’t decimate the risk advice industry.
They have reached a size they are comfortable with and like the major banks will now do everything in their power to retain the existing book and milk the profits – forget healthy competition…