Poor claims experience has been cited as the reason for the poorer than expected financial results of TAL and ClearView.
TAL
Despite a 15% increase in premium and other revenue in the six months to September 2013, TAL’s parent company, Dai-ichi Life, reported the business’ annual net profit after tax was down by nearly $40 million on the previous year.
TAL said the fall in profits was due to negative claims experience; specifically in relation to a higher than anticipated level of claims on living insurance products – disability, income protection and trauma cover.
TAL Group CEO and Managing Director, Jim Minto, said it was clear from the announcements released during this reporting season that the entire life insurance industry was impacted by unexpectedly high levels of claims and lapses.
“While TAL has also seen larger effects from claims, we have, partly as a result of price adjustments, been able to continue to grow TAL to become Australia’s second largest life insurer as measured by in-force premiums.
“The really good news is people are accessing and getting major benefit from their life insurance in this period of higher claims,” he added.
Mr Minto said he expected there would be a period of adjustment while the industry worked through a series of steps to improve the outlook.
The really good news is people are accessing and getting major benefit from their life insurance
“While there has been publicity about price increases for life insurance within superannuation, the availability of life cover in super has resulted in many people getting access to cover they might not otherwise have obtained. We believe major schemes will adjust cover design and benefit amounts to improve affordability and sustainability of these covers. This will help to maintain the enormous benefits Australians receive from having this life insurance in superannuation.”
Mr Minto added that efforts were also continuing to help reduce lapses, which are running at higher than planned levels across the industry. A key element of this activity, said Mr Minto, were initiatives to better inform and educate customers about the high value of life insurance which can forestall a financial crisis when an income suddenly stops, permanently or for an extended period.
ClearView
ClearView reported that its FY 2013 financial result was adversely impacted by statistical volatility in life insurance claims experience that followed a favourable FY 2012. The claims volatility led to a reduction in underlying profit after tax of 17% year on year.
However, ClearView Managing Director, Simon Swanson, said the experience loss of $1.9 million was not attributable to the wider life insurance industry issues, and represented ‘material claims volatility’ which the group anticipates will average out over time.
“In the last few years the life insurance industry has been significantly impacted by poor performance in group life insurance and underwhelming performance in income protection,” Mr Swanson told investors at the company’s Annual General Meeting.
… we believe that the group life insurance market has not been appropriately priced …
“To date we have been clear that we believe that the group life insurance market has not been appropriately priced and there would be no point in participating in this segment. As such, we have had no exposure to the recent large industry losses reported and significant premium rate increases. We think there is some significant change still to come and needed before we would even contemplate this segment.
“We remain concerned about income protection, particularly the old, historic portfolios written pre-GFC on old policy terms and high sums insured beyond current income levels. Consequently, when looking to re-enter the market we were keen to find a vehicle that had very limited exposure to in force income protection. ClearView’s direct portfolio has under 1% exposure to old income protection policies. In entering this business segment for new business, we have not sought to lead market pricing and indeed are looking to follow the market as anticipated price increases and more sustainable pricing flow through the industry.
“Our strategy of focusing on the profitable segments has so far been vindicated,” Mr Swanson said.
ClearView reported an increase in in-force premiums of 41% over the year to $62 million. New business premium in the year was up by 273%.
Industry fund premiums are cheap is the non industry fund client subsidizing them?! The more I think about it. They must be ! Screwing us all!
Claims for death, TPD and Trauma can be controlled and monitored relatively easily, as they tend to be in many cases one off payments.
There will be spikes, ebbs and flows in this market. Where it gets difficult is Income protection.
This is a potential graveyard for retail Insurers as many of them do not handle these claims well and leave themselves exposed to long term claimants who can very quickly start playing games if they are not “HELPED” to get back to work.
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