Life Industry Unsustainable in Current State – New Report


The precarious nature of Australia’s life insurance industry is in a more parlous state than has been documented, according to a new report.

In a paper released this week, Retender MD, Ilan Leas, cautions that the industry may be locked into a deteriorating spiral and questions whether the existing model under which it operates can ever be sustainable.

Challenging current assumptions in his paper entitled The Sustainability Fallacy, Leas documents his rationale for his concerns and, importantly, offers solutions that he says would deliver a more sustainable life industry structure for the future.

Retender MD, Ilan Leas …industry may be locked into a deteriorating spiral

Using the analogy of determining the point at which a consumer should either repair a faulty refrigerator or buy a new one, Leas sets out the arguments associated with fixing the current life insurance industry structure or ruling a line beneath it and starting afresh.

His argument that the industry is in a worse position than is presently assumed revolves around how life companies report claims losses. Although the current picture is already gloomy, Leas says the true extent of the volume of claims losses incurred by the industry has been hidden – to an extent – by the ability of insurers to offset or retrocede risk to their global parents or other overseas reinsurers, thereby allowing lower loss numbers to be incorporated into APRA-required reporting.

…these numbers are understating the true extent of the losses incurred by the industry

Referring to APRA’s Quarterly Life Insurance Performance Statistics, Leas notes that for the 12 months to December 2019, risk products reported a combined after-tax loss of $1.3 billion. “However, these numbers are understating the true extent of the losses incurred by the industry,” he says, adding “Reinsurers are able to retrocede risk (as much as 50%) to their global parents or other overseas reinsurance entities. Losses on retroceded business are not incorporated into the APRA statistics, meaning gross reinsurer losses could be double that reported.

…gross reinsurer losses could be double that reported

Other issues cited by Lees as compounding an already serious situation include:

  • Significant increase in expenses for insurers, due to increased business change requirements, data gathering, regulatory change, merger activity and additional risk controls
  • Falling revenues across the segments with reducing sales
  • Increase in lapse rates as premium rate changes are being put through in the individual segment
  • Additional capital costs imposed by APRA
  • Spikes in claims notification as awareness has increased
  • Pressure on life companies to pay grey claims (the ‘Orr factor’)
  • Selective lapses (where healthier policyholder exit the pool)
  • Pressure on the asset side of the balance sheet due to the Covid-19 virus and interest rates

The solutions

One way for the industry to move forward, says Leas, is for it to agree to implement some clear principles that should form a part of any future business model for the sector.

These solutions include:

  • Stop talking about losses year after year – re-capitalise once
  • Hedge the insurance risk – reduce volatility
  • Separate new business and the backbook – move the backbook into run off
  • Go further than the minimum product requirements – reduce replacement ratios, reduce benefit term and remove stepped products
  • Develop a clearer picture of future trends – start again without an anchor (ie without the drag of history)
  • Better align behaviours with long term outcomes – ultra long-term remuneration for life company execs
  • Transparency – be honest about the uncertainty for customers – communicate they could be seeing 20% p.a. increases for the next 7-10 years

Leas considers each of these solutions in more detail in his paper, which can be accessed by clicking here

He concludes that because he asserts industry losses are far worse than reported, the industry and consumers may be far better off replacing the fridge completely than trying to repair it.


  1. There is some conflicting information that on one hand, shows claims are X and premium income is Y, where Y is multi-billions of dollars higher than X, yet the Life Insurance Industry is facing huge unsustainable losses?

    The solution is easy and could be enacted quickly, at NIL cost to the Tax payer.

    The simple truth is, that now the Government has unleashed the attack dogs, we now have an army of ASIC investigators, auditors / compliance robots with little understanding of how the Life Insurance Industry functions, yet have put their 2 cents worth of knowledge into the process and we have ended up with a BID that benefits no-one.

    There are less than 4000 specialist Life risk advisers and that number is reducing.

    Australia needs 40,000 risk advisers, which would instantly resolve the issues around a diminishing revenue pool, though no practice will contemplate putting on more risk advisers, as it is just too hard, with too much risk.

    We have repeated ourselves infinitum on how this can be quickly turned around and to date we have been ignored, with the result, the continual decline of the Life Insurance Industry.

    The Life Insurance Industry is a cash cow, in that for the receipt of multi-billions of dollars for nothing more than a promissory note, it still manages to over complicate what it actually does and convinces itself that the way forward, is to work through a maze of red tape, unworkable LIF regulations and confusing protocols, which has led to the situation the Industry now faces, which is the destruction of a great service to all Australians, with NIL benefit to any-one.

    WAKE UP all those with a say, who to date, clearly have not been able to articulate the obvious issues and solutions.

    • Agree. also the article does raise a lot of what arte my concerns and I see a further troubled industry. The real numbers are not yet seen. i along with so many are exiting for various reasons. Over 30 years in the industry myself and all this knowledge and of others leaving

    • Jeremy, you make a comment on conflicting information. The information is not conflicting when you consider a few things, such as:

      1: Premiums received by the life insurer must cover everything associated with selling and maintaining the life policy. Just quietly, the second largest cost is adviser commissions. [I’m sure you’re smart enough to work out that equates to more than 20% of premium].

      2: The premiums received in 2020 must pay for claims that START in 2020 and continue on (could be for another 40+ years for income protection). So, a large chunk of the premiums must be set aside for the cost of these claims too. In other words, a premiums and claims comparison in any year is actually meaningless for income protection.

      Do you believe the life companies are reporting losses to APRA that don’t actually exist? That they’re making it up? Really?

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