Life insurers are still not sure what the impact of the stalled life insurance framework will be on lapse rates, says EY Actuarial Services Manager Tyson Johnston.

“We asked actuaries [in life companies] what they thought would happen to lapse rates and there was a lot of variability,” he told the Actuaries Institute Financial Services Forum in Melbourne.

“Some people say the lapse rate experience has come down due to the greater scrutiny of adviser conduct.”

Mr Johnston says it is possible the shape of lapse experiences will change after the legislation is eventually passed.

“It will be useful to think about the drivers behind lapses and the adviser impact with churn driving it. Will lapses reduce in the clawback period and will we see them trend towards traditional outcomes?

“If there are poorer lapse rates for insurers it could mean customers will face higher premiums.”

Mr Johnson says the only way to judge if the legislation has worked is for insurers to compare rates before and after the legislation has taken effect.

This is unlikely to come into effect before next year, due to the election.

Insurers will therefore have little time to analyse the effect on lapse rates before the regulatory review of the life industry takes place in 2018.

He says insurers can restructure their operations in anticipation of the changes, although a future Labor Government has hinted it would take the legislation further with regard to commissions.

The biggest challenge will be the ASIC review, because there is a number of “unknowns” in the guidelines.

“There is no agreed definition of churn or a means to measure it,” Mr Johnson said. “The inquiry will look at the ‘significant impact’, but what is that?”