Life insurance retail sales now drive insurer behaviour, leading to concerns over poor practice, the Australian Prudential Regulation Authority (APRA) says.

Deputy Chairman Ian Laughlin told an Actuaries Institute meeting sales and growth are essential to the industry.

“But this culture has sometimes overwhelmed the fundamentals of sound insurance management, and it continues to have a strong influence today.

“Independent advisers play a much greater role in the market, and direct distribution has gathered an increasing share of retail business.”

Mr Laughlin says the change in distribution from the tied-agent model to multi-agents is not without its problems.

“This change in distribution has driven life insurer behaviour, because they have competed for the support of the advisers and sought alternatives to reduce reliance on adviser favour.

“Partly as a result of the focus on sales and distribution, there are a number of practices APRA has observed in the market that arguably do not meet standards of fundamental good practice in insurance management.”

Mr Laughlin says poor practices include pricing unsupported by analysis, disability and trauma definitions that are open to interpretation and complex products that are hard to understand.

Another problem is the payment of benefits without admission of liability, to curry favour with advisers and avoid negative media attention.

“The advent of questionable practices often has been driven by the desire to score well in product ratings in a bid to attract business from advisers,” he said.

“Not only can this undermine sound insurance management, but it often will result in features that are not necessarily needed or wanted by the customer.”

Mr McLaughlin says adviser commissions are important in distributing life products, but he would not be drawn into the debate on the issue.