Life insurers’ top three concerns are return on capital, regulation and declining claims experiences, according to a survey of CEOs by the Financial Services Council and investment software group DST.

“Return on capital has been poor globally,” the report says. “Some CEOs argued this is being made worse in Australia because the local market tends to have deeper troughs and higher peaks as the disconnect between benefits and premiums is exacerbated by the large pool of group insurance.”

CEOs say increasing regulation is stifling product development and innovation.

“Australia has one of the most regulated life insurance markets in the world,” the report says.

“The financial services industry has a raft of new regulations coming into effect during the next year, so it’s not surprising that the cost and volume of regulation is concerning CEOs.”

Companies are diverting staff to compliance projects rather than growing their businesses, with product design and strategic planning in particular suffering.

The report says economic conditions, legacy products and mental illness are driving a decline in claims experience.

“In an effort to gain market share, many life insurers have been offering products where the price and benefits are mismatched. Most life insurance CEOs noted this disconnect, especially for products that are relatively new but had strong claims during the global financial crisis, such as income protection.”

The imbalance can only be corrected if prices rise or benefits fall, the report says.

“Many CEOs argued that some products currently on offer, especially income protection with a mental illness component, would need to be fundamentally redesigned to ensure the sustainability.

“Rapid medical advancements have affected insurers’ ability to sustainably match price and benefits. Benefits will need to… be more objectively defined into the future so claims can be estimated with greater certainty.”