The Australian Prudential Regulation Authority (APRA) wants group life insurers to create portfolios of business that are sustainable in the long term.

GM Diversified Institutions Adrian Rees says a number of the group life sector’s problem areas – such as pricing and claims – were foreseeable.

“We saw people making very optimistic views of the future,” he told an Australian and New Zealand Institute of Insurance and Finance seminar in Melbourne last week.

“There was a lack of focus on the downside, with marginal pricing and pressure on claims.”

Suncorp Life EM Claims David Hutton told the seminar the increase in claims involving lawyers is not to be feared.

“There is no problem with lawyer involvement. The industry blames lawyers because they have a different mentality – they are the problem in claims and the claims experience is due to them. But group life should start looking at working with the lawyers, because we have the same goals.”

He says if insurers work with lawyers to improve claims experiences, it will cut claims durations and reduced costs.

The rise in group life claims hit the local reinsurance industry hard, with Munich Re reporting a $56 million after-tax loss on its life business, according to APRA figures for last financial year. Reinsurance Group of America lost $73 million on its life business, while Swiss Re suffered a $137 million loss.

Swiss Re Head of Life and Health Leigh Watson told the seminar reinsurers were “caught in the eye of the group life storm”.

He says reinsurers still want to work with the group life industry, but there are a number of issues to be addressed first.

“These include volatility needing to be managed to acceptable levels, while benefits and returns should flow to the right people and stakeholders.”

Mr Watson says the sector needs to better predict looming problems.

“The industry shouldn’t run when times get tough. We need to make sure there is [reinsurance] capacity to look after the market, but what we saw was retraction at the height of the group life storm and that was not a good thing.

“We need to get better at managing the [group life] cycle and looking for the warning signs.”

See a full report on the ANZIIF group life seminar in Wednesday’s Life+Health insuranceNEWS.com.au