Life insurers can address the complexity of legacy products by investing in better systems and data management, according to the Australian Prudential Regulation Authority (APRA).

“Historically, life insurers have underinvested in their systems and are unable to efficiently manage the ever-increasing number of legacy products,” the regulator says in a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ industry inquiry.

“Data on legacy claims and policies is not readily available in a reliable way to inform decision-makers.”

APRA says it has been concerned about underinvestment in systems for some time, but it notes some insurers have started work on long-term upgrades.

“Better data processes and systems benefit the consumer and the insurer by delivering better customer service in the event of a claim, and by improving the efficiency and decision-making of the insurer,” the submission says.

“A lack of robust, reliable data, together with old systems and software, imposes significant constraints on the ability of an insurer to manage its business efficiently.”

APRA accepts changes in legislation would make rationalisation of legacy products easier.

The industry and Federal Government worked to develop a legal instrument enabling legacy policyholders to be moved simply to new products without a detrimental impact.

But these discussions petered out, and despite the Financial System Inquiry also recommending action, there has been no progress.

“APRA continues to strongly support the need to comprehensively address this issue. From the perspective of the product provider, it would help mitigate the increasing operational risk that such products create, as well as improve the industry’s operational efficiency.

“From the consumer perspective, it has the potential to improve consumer outcomes by updating definitions, improving efficiency and administration, and lowering costs.”