The need for innovative retirement offerings that help to address longevity risk for relevant cohorts presents a real opportunity for the life insurance industry, according to APRA.
The authority, which held its annual life insurance CEO roundtable in July with a focus on longevity solutions, is encouraging insurers to continue to work closely with superannuation trustees to help members better understand longevity risk and the role of longevity solutions in mitigating that risk.
APRA says its roundtable represented a valuable opportunity for it to have an in-depth discussion with industry stakeholders about the challenges and potential solutions for life insurers in delivering longevity solutions for suitable retirees.
Hosted by APRA Member Suzanne Smith together with Executive Director Sean Carmody and General Manager Nancy Ma, the roundtable was attended by 21 life insurance CEOs and other executives as well as representatives from Treasury, ASIC and the Council of Australian Life Insurers.
APRA says the discussion was facilitated by the key insights it garnered from its bilateral engagements with selected industry stakeholders in the Australian longevity market and from observations on some overseas jurisdictions.
The authority says participants discussed the market for longevity solutions and there was general consensus that “…an increase in the demand for longevity solutions is necessary for insurers to be incentivised to develop a business case to invest in, and accurately and sustainably price risks.”
It says participants believed that the limited demand by the Australian community is driven by several factors, such as:
- Limited awareness of longevity products
- Misconception about longevity products
- A ‘nest egg’ mindset which results in a preference to preserve an account balance. Participants noted that this is not the case for defined benefit members who tend to have an income stream mindset.
APRA noted that although there is no ‘silver bullet’ to addressing the demand challenge, life insurers are an important stakeholder in the retirement ecosystem and can play a key role in leaning into the challenge.
It also noted that based on its overseas study, countries that have a high level of take-up of longevity products are those with a strong level of compulsion or incentive provided by the government.
…participants commented that there is a genuine need for longevity solutions for certain cohorts of retirees, but those needs are often not recognised by the retirees…
APRA says participants commented that there is a genuine need for longevity solutions for certain cohorts of retirees, but those needs are often not recognised by the retirees.
“APRA was encouraged to hear that some insurers are proactively engaging with trustees on their retirement income strategies and taking steps to improve awareness and understanding of longevity solutions, including developing educational materials for superannuation members.”
It says such collaborative effort will make a positive difference to improving member engagement and financial literacy, an area identified as a key challenge by trustees in the pulse check on retirement income covenant implementation.
APRA says it remains committed to continue engaging with the life insurance industry to explore ways to potentially reduce barriers for insurers to provide and innovate longevity solutions that improve retirement outcomes for the Australian community.
The table below shows the top three factors that 10 local insurers surveyed view as the top challenge.
The roundtable also discussed the ‘default’ option in retirement and innovation.
“Participants observed that part of the challenge is insurers’ hesitation to innovate and introduce new products in the absence of adequate support mechanisms if the products do not achieve scale to be sustainable. Participants noted the current legislative settings limit the ability of insurers to rationalise legacy products and this stifles innovation,” says APRA.
Click here to read APRA’s full notes on its Life Insurance CEO Roundtable.
