The growth in sales of income protection products will cause the life insurance industry some headaches unless they manage claims better, Asteron EM National Sales Mark Vilo says.

“The challenge for the industry will be to manage income protection portfolios profitably,” he told insuranceNEWS.com.au. “Obviously there will be an increase of claims in the future.”

Mr Vilo says income protection sales increased as advisers switched from investment products to life insurance.

“Advisers have faced challenging times and they have been looking for ways of creating more income, and that has been from insurance.”

Mr Vilo says he has also seen a lot of younger advisers joining the industry deciding to sell life insurance instead of advising on investments.

“These young advisers have looked at the life insurance industry and seen it can make a good living for them,” he said. “The whole dynamics of who is writing business is changing.”

TAL CEO Retail Life Brett Clark told insuranceNEWS.com.au advisers are finding it easier to sell income protection policies rather than the traditional life products.

“The industry has moved a long way from traditional life insurance to more living benefits protection,” he said.

“When an adviser is speaking to a client, it is easier to talk about benefits that will affect their day-to-day situations.”

Mr Clark says there will be a steady rise in claims based on the success of advisers selling more policies.

“The industry is experiencing more sales of income protection products; at TAL they now account for about 35% of our retail sales,” he said.

“This will mean insurers will have to increase their reserves on the products to allow for the growth in future claims.”

Recently Munich Re boosted its Australian reserves for its disability business by $195 million.

Clearview MD Simon Swanson agrees legacy income protection products will be worrying reinsurers, which is why Munich Re has increased its reserves.

“People are finding there is a sting in the tail from these ’90s products with their generous conditions,” he told insuranceNEWS.com.au. “They are coming home to roost and we will see the cost of claims rise next year.”

Rice Warner Director Richard Weatherhead says there have been growing sales from the conversion of older policies into newer ones.

“There has been a lot of sales converting older legacy products to new products that offer more benefits,” he told insuranceNEWS.com.au.

“But some legacy products will remain as they offered lifetime cover, so people will be reluctant to move from them.”

Mr Weatherhead says clauses such as lifetime cover and less emphasis on getting the policyholder back to work mean claims on these policies will be expensive to settle.

“As these older policies are drawn down, there will be bigger claims compared to modern income protection products,” he said.

“Also, business sold 15 years ago was poorly priced.”