Life insurers must undertake a fundamental product redesign and underwriting transformation to be sustainable in the long term, consultant Oliver Wyman warns.

Insurance and Wealth Management Practice Partner Angat Sandhu says life companies have made tactical responses to core problems, but have lacked the capacity or appetite to make fundamental changes.

They are not creating innovative products to better meet customer needs, and competitive pressure has led insurers to misprice risk and give away more coverage.

Many insurers have set up innovation teams, yet few have done anything meaningful with them, Mr Sandhu says.

These teams have been siloed from broader organisations, the culture of which has stagnated.

Senior leadership must make innovation a priority, lead by example and build in organisational processes that support it, Mr Sandhu says.

He suggests insurers can learn from insurtechs, which exhibit these characteristics.

This is a global issue, but Australian insurers need to face it now, he says.

Mr Sandhu warns insurers are also failing to properly collect and process the limited customer data they have. They should reassess their customer contact points, expand them and collect more data to build better customer profiles.

Implementing such initiatives may mean sacrificing short-term profits for longer-term investments, he says.