A Parliamentary committee has questioned the Australian Prudential Regulatory Authority about the life insurance industry’s sustainability woes.
Addressing the Standing Committee on Economics as part of APRA’s regular reporting schedule in Canberra, APRA Deputy Chairman, Ian Laughlin, said the industry was suffering from “self-inflicted issues” which had come as no surprise to the regulator.
“The insurance industry does go through cycles. It is not to say, though, that the fluctuations that we have seen in very recent times can be justified. They really should have been able to manage their affairs better than they did. It is partly a function of changing social norms, as I have said, and partly a function of the way the industry has managed itself,” Mr Laughlin said.
Mr Laughlin was questioned by MP David Coleman about the insurance industry, and whether the current issues suggested that there were some regulatory issues that needed to be resolved.
The APRA Deputy Chairman responded saying there were two broad issues that had led to the insurance industry’s sustainability concerns.
They really should have been able to manage their affairs better than they did
“The first is external. For example, changes in social attitude to mental health have been a bit of a surprise. The involvement of lawyers in claims processing has changed dramatically recent times. And both of those things have increased claims. The industry was not necessarily well prepared for either of those, and in some ways that is understandable.
“On the other hand, there are some self-inflicted problems: very aggressive pricing, terms and conditions that were also aggressive or very liberal, and underwriting standards that also were very liberal. So those self-inflicted issues have been apparent for some period of time. 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,” Mr Laughlin said.
He told the Committee that despite regular communications between APRA and Australia’s life insurers, it had taken companies a long time to act on what he described as the “number one issue in the life insurance field”.
“Over the course of the last few years we spoke to boards, we spoke to management, we spoke to the industry at large through speeches, letters and so on, in an attempt to influence what they were doing. Whilst we had those quite significant concerns, they continued to be profitable for a number of years. So there was a reluctance on their part to actually change what they were doing. In more recent times they have suffered some losses, and they have been much more receptive to the idea that they needed to change practices,” Mr Laughlin said.
A major concern with this issue is the blame placed on lawyers and financial advisers for assisting in getting more claims through which is then a problem for the insurers. So this is not necessarily saying the incidence of claimable events has increased, just the claims.
Does this then imply that the insurers were counting on a certain number of claimable events not being claimed on to maintain sustainability? Was this through lack of research on illness/injury stats? Or was it assumed that people would not know they had insurance, or know they had a claimable event so would let these things slip through?
If the lawyers are now assisting clients to get valid claims paid, then it poses the question how many valid claims were rejected by insurers on claimants who did not have access to lawyers for one reason or another.
How many people were bluffed and bullied out of claims by insurers in the past.
Arnold, instead of perpetuating negative stereotypes, why not focus on the fact that the life insurance industry paid out over $5 BILLION in claims last year. That proves that a substantial amount of valid claims are regularly paid. The number of claims denied is only a fraction of the number that is paid.
While you may feel that people are bluffed and bullied out of claims, there is a much greater degree of bluffing and bullying going on to pay claims. Lawyers are commencing court proceedings on small claims knowing full well that the cost to the insurer of defending them is far greater than paying them and so a compromise is reached. Such claims could be handled for free by FOS or the Ombudsman but the lawyers want their share.
The problem with the increased lawyer involvement is that they are getting a huge cut out of someone’s superannuation benefit – some anecdotes suggest between 30-50%, often in circumstances where the claim would have been paid anyway. If it was an individual policy, there would be an adviser to help them negotiate the claim process for free, but with an industry fund, who does the member turn to for help or advocacy?
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