Self-inflicted wounds hurt group life insurers: APRA
Group life insurers have come under fire for the “bucket-load of self-inflicted problems” that have led to “quite significant increases” in disability claim costs.
Australian Prudential Regulation Authority Deputy Chairman Ian Laughlin says the problems include “very aggressive pricing, terms and conditions that were also aggressive or very liberal, and underwriting standards that also were very liberal”.
“Those self-inflicted issues have been apparent for some time,” he told the House of Representatives Economics Committee. “So to us they were not a surprise; they were something that we had been talking to the industry about for a number of years.”
He says the “involvement of lawyers in claims processing has changed dramatically in recent times”, which has also contributed to increased claims.
“The net result has been quite significant increases in the cost of disability claims in particular. That has resulted in losses for some institutions – in particular for reinsurers. Then there has been a consequential increase in premium rates for the insurers to compensate for those losses.”
Mr Laughlin says premium rate rises have been “very significant” – in come cases 100-150%.
“That is a highly undesirable outcome, because those costs flow directly to the members of the super funds, of course. Some of the members have bought insurance based on a certain price and have then found that price has increased dramatically within a short time.”