Group Life Profitability Hampered by Bad Press

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The group insurance market has returned to profitability but recovery is being hampered by efforts to repair problems areas in the sector, according to an assessment released by risk management consultants Marsh.

Marsh stated that while the group life and group income protection markets had seen a return to profitability after losses of close to $1 billion in 2013, following five years of declining net profit, the level of profitability was still below that of 2008.

While profitability had reached $600 million by the end of 2015, Marsh stated that recent media attention around claims practices and the impact of that attention in the default superannuation insurance sector could not be discounted.

“It is likely this has held back the speed of the market’s recovery and has certainly impacted insurers’ resourcing, with staff prompted to concentrate efforts on investigating matters and implementing improvements flowing from identified issues. Depending on the breadth and depth of these issues, this could continue to hamper the market’s recovery,” Marsh said.

The recovery of the group life sector was driven by insurers being more selective as to which schemes they were willing to tender and through better matching of risk against the benefit designs, occupations and claims experience of each individual scheme, Marsh stated.

At the same time group life insurers were re-entering the tender market with a wider variation in offers than in the past few years with insurers willing to negotiate on their offerings while schemes are renewing on current terms, which Marsh labelled as ‘positive reflections of the market direction’.

Marsh also stated that insurers were implementing more product innovations for particular clients with some considering their inclusion in their standard product offering, while boosting investment in claims management capabilities.

 

FSC CEO, Sally Loane
FSC CEO, Sally Loane

In related news, the Financial Services Council (FSC) has called for the opt-out provisions of group life insurance to be maintained as it provided life insurance many would not have through other means.

The FSC made the call in its submission to the Parliamentary Joint Committee inquiry into life insurance in which it stating group life insurance provided cover for more than 90% of working Australians and reduces Government expenditure on welfare benefits by $400 million a year.

The Council stated that $4.4 billion was paid out in insurance claims benefits through group insurance cover in 2015 and 81 cents in the dollar received by group insurers was paid out in claims between 2011 and 2016.

FSC Chief Executive, Sally Loane said this demonstrated that group life insurance was providing a safety net for people who may not have sought or been able to gain insurance cover.

“We need to preserve insurance inside group superannuation, and we need to preserve the current opt-out mechanism.  Without this people would slip through the net. It would also make insurance more expensive, potentially pricing out many Australians who receive cover today,” Loane said.

“Worse than that, many Australians, for example those working in heavy industry or suffering from a pre-existing medical condition, may not be given access to any cover at all if it wasn’t provided in their workplace fund.”