Poor life insurance claims experience has impacted ClearView’s annual profit result, but the group said the volatility was not attributable to wider industry issues.
ClearView announced an underlying profit of $16m, down 17% on the previous year. The group said the figure reflected an adverse term life insurance claims experience, which resulted in a loss of $-1.9m over the previous 12 months. The group also experienced a loss of $-0.8m due to lapses.
However, ClearView said the poor experience was to be expected, due to the current small size of its life insurance portfolio and the historic reinsurance arrangements in place, and related predominantly to the term life insurance portfolio written before 2011.
ClearView’s pre 2011 portfolio has very limited income protection business
‘The claims experience volatility has not been attributable to industry issues associated with income protection claims as ClearView’s pre 2011 portfolio has very limited income protection business (less than 1%),’ the group said in a statement accompanying the results.
The wealth manager added that it also had no group life insurance business, which has similarly caused underperformance in the industry.
ClearView Managing Director, Simon Swanson, said while other wealth managers did not disclose the reason for their underperformance, he believed it was a “… combination of recent financial market volatility and the accelerated run-off of the very profitable old portfolios of high margin business.”
“Taking a closer look at claims, the lump sum business of most retail insurance portfolios, and in particular the term life books, have been subsidising their income protection books for a number of years.”
Mr Swanson said the problem had been compounded in recent years by improved mortality rates, and a deterioration in income protection claims (due largely to an increase in mental health claims and longer claim durations).
“The industry continues to invest in better claims management techniques but this, in our opinion, will not be enough,” Mr Swanson said.
He also highlighted the unintended consequences of providers increasing premiums in isolation; because the customer would be worse off, an adviser would be well within their duty of care to move these clients to new providers, leading to what some have labelled ‘churn’.
Some ill-informed members of the life insurance industry have started an ‘emotional’ attack on commissions
“Some ill-informed members of the life insurance industry and external commentators have started an ‘emotional’ attack on commissions that are paid to financial advisers for life insurance, especially upfront structured commissions…
“An adviser doing the right thing by their client has an obligation, morally and now at law (that is best interests under FoFA), to provide their clients with a better alternative that is to potentially move from out-dated, expensive and/or poor terms policies to a better outcome – irrespective of commission structures or the remuneration of the financial adviser.”
Mr Swanson said ClearView’s response to the current market issues was to focus on providing quality advice, developing sustainable products and services, and managing its in-force portfolio as it grows to ensure the terms and pricing remain current over the longer term.
“It is both exciting and encouraging to see the stepped change in the growth profile of ClearView. It is further encouraging for management to have new major shareholders who are supportive of our growth and ambitions,” he said.
