Hume: Rationalising Legacy Products


The ability for insurers to rationalise legacy products is an important issue, says Senator Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy, and one that she will be “..looking at closely.”

She told the FSC Life Insurance Summit 2021 that legacy products were one of the barriers that distract, or prevent, insurers from focussing on innovation.

Hume says that legacy insurance products still impose significant costs on the industry, noting that the FSC has estimated that there are – conservatively – 286 outdated life products, and $22.6 billion of funds under management that are allocated to aged products.

Even a small number of outdated products on an insurer’s books leads to significant dis-economies of scale…

Jane Hume

“That is a huge inefficiency. Even a small number of outdated products on an insurer’s books leads to significant dis-economies of scale. Each closed financial product requires a broad range of services to maintain it.”

She understands that these maintenance requirements for old products are not much lower than for current on-sale products, noting they require the maintenance of old technology and specialist services.

When insurers spend too much of their time looking after aged products, they spend too little time thinking about how best to serve their customers, she says, adding that the customers aren’t well served by these products either.

“What’s more, for consumers legacy products can have higher risks, lower returns and higher fees when compared with modern products. They may not have protection from Unfair Contract Terms. They may use outdated definitions, in particular for medical conditions. They may not be internet enabled.

“Currently there is a swathe of legal, consumer and tax issues that prevent insurance providers from rationalising legacy products in an efficient and cost-effective manner.”

A statement from the FSC says the Minister’s acknowledgement of the need to modernise outdated life insurance products is positive news for the millions of Australians who have billions of dollars trapped in legacy products across life insurance, super and managed funds.

FSC CEO Sally Loane says that a product modernisation scheme “…which can utilise a special tribunal to adjudicate on legacy product matters will solve the problem long-term.”

“We look forward to working with the Government to design a scheme that is in the best interests of financial services consumers,” she says.


  1. There appears to be a disparity in the argument being presented and it seems to cloud the real issue, being that Life Insurance and Investment products are being presented as one and the same, which they are not.

    Whole of Life and Endowment policies had Insurance and Investment combined and were hugely profitable for Life Companies, though they were removed decades ago when the Life Insurance Industry seperated their Insurance policies into stand alone products.

    Clients who have been loyally paying their Life and Disability Insurances for many years, are not Legacy products, they are the foundations that support the whole Industry and need to be treated much better than what has been occuring, with rampant premium hikes due to misguided strategies that had NIL MERIT from day one.

    The first step to improving the current terrible state of affairs, is to do what we have been saying for over 10 years, which is to seperate Life Insurance from Investment, as they are two totally different Businesses and must be Regulated differently which must include common sense requirements, something that has been sadly lacking and which has caused the total chaos being felt by all Australians today.

  2. You have to wonder where these thought bubbles are coming from into the brain Ms Hume. Seems as though the umbilical cord that attaches from the FSC to this so-called small business government is still pumping the same selfish nonsense into the system.
    Firstly, what exactly is a legacy product. No one has really defined that concept in this argument and I’m not surprised. Too much detail might alarm the chooks who pose as our parliamentarians.
    I don’t believe there are very many whole of life policies of any type left on the books, except those where the original adviser, or subsequent learned advisers, were able to convince the client that there may be some benefit in retaining the policy over the long term. Of course, that principle only applied to the “real” whole of life policies that guaranteed bonuses, once paid. Yet another concept where the insurers subsequently devised lesser products to rip off policyholders.
    What the FSC want to do is basically convert ALL policies that were written up to say three years ago into a modern day equivalent. What will be offered – a so-called up-to-date policy that favours the insurer not the insured. You can bet London to a brick that the client will be losing out! And you can hear the yells already for legacy products to be replaced “with minimal underwriting”, I can’t see them transferring the risk without wanting to look at the client’s health changes and occupation changes since policy inception. Just look at APRA’s latest proposals on IP.
    When you buy an individual retail life insurance policy, and your individual risk is fully assessed by the insurer, then that’s the end of the matter in terms of any changes to your health or other risks from that day on. That’s always been the actuarial principle and policies have always been costed according to that principle i.e. the insurer must take into account that that policyholder will be on the books and able to claim for the next 20, 30, or 40 years, providing they keep paying the ever increasing premium.
    These clients are entitled to believe that the policy or contract they signed up for will remain on the books and the terms and conditions cannot be altered without the policyholder’s permission, providing they pay the premium. We should not have a situation where a government, pressured by a lobby group representing the big product manufacturers, sanctions the transfer of policyholder risk to inferior contracts. Not especially after the self-imposed damage of LIF.
    Destroy that concept of the promise and you destroy the life insurance industry in Australia.
    Life insurance of any kind is a long-term prospect, and it requires life insurers to think long term, something some of them seem to have forgotten since they became shareholder companies and pay bonuses to executives.
    We advisers sell a promise, that when certain events occur, certain predetermined benefits will be paid to the policyholder-“ the right money, to the right person, at the right time”. It is not for greedy life offices who are suffering badly for stupid decisions they made in the last five years to suddenly run an argument to government that it’s time to get rid of those “unprofitable legacy products”
    I call plain BS. Bah humbug Minister!

    • Seems as though the umbilical cord that attaches from the FSC to this so-called small business government is still pumping the same selfish nonsense into the system.

      One day people will realise they have never been on that side…

      Firstly, what exactly is a legacy product.

      Anything that is not currently on sale. So if an insurance company does a product update and contracts have been sold with various terms, they fall under the “legacy” portfolio as the insurer still has to honour these terms.

      This is probably the only way that the industry can see how to shift clients from unprofitable contracts on to new profitable ones – with less benefits of course.

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