Prominent adviser and former AFA National President, Sam Perera, has renewed a public call he first made ten years ago for the life insurance industry and the law makers to come together to fix the life insurance market, which he currently likens to a burning platform.
Perera commenced his advocacy in 2015, when Riskinfo reported on a letter he sent to then prime minister, Tony Abbot:
Sadly, according to Perera, many of the concerns he was raising ten years ago have been borne out:
“The life insurance market is somewhat of a burning platform due to the significant decline in new business volumes alongside a corresponding spike in claims,” says Perera of the status of the life insurance sector in 2025.
He adds it is “…vitally important that the stakeholders in the insurance industry understand that we have a duty of utmost good faith, not just in the context of drafting and interpreting insurance contracts but in how we conduct our affairs. We have a social license to operate, and our clients are trusting us to ensure that we are there at their most vulnerable times to save their families and their businesses from financial ruin.”
…the life insurance market is clearly broken
Perera argues the life insurance market is clearly broken, referencing data held by researchers and insurers suggesting that after taking into account the combined effect of lower new business sales volumes and current lapse rates that the insurance pool (net of premium increases) is shrinking rapidly.
“The only tool that is seemingly being used is a very blunt one – premium increases,” says Perera, adding “There are only so many increases that our clients can absorb, leaving them to reduce or cancel cover. The great risk of this strategy other than those being unable to afford insurance is that the lives that are most likely going to claim will be the ones left in the pool, resulting in further deterioration in claims experience.”
Aside from premium increases, argues Perera, his sense is that there is too great a focus on the proposed new class of advisers and life solutions delivered under general advice to solve today’s issues. But Perera questions when the new class of adviser will become a reality, and warns general advice carries risk if not done properly (he cites Westpac v ASIC S69/2020).
…it is very difficult to see the current settings supporting any more than three or four insurers in the market
In a down-beat assessment of at least the near future, Perera contends it is very difficult to see the current settings supporting any more than three or four insurers in the market and warns of a risk of the life insurance market turning into an oligopoly: “There has been some spruiking recently of the fact that new business sales volumes are increasing,” says Perera, “…however the increases are not meaningful and far from returning to the numbers that we need for a thriving market.” He adds he is convinced that there will likely be another life insurer exit the market in the next three or so years unless something drastic happens.
While articulating the issues, he also offers solutions. According to Perera, the following steps need to be taken to facilitate a thriving life insurance market:
- Legislate the new class of advisers to improve distribution of ‘simple advice’ for insurers and advice practices
- Legislate to eradicate Statements of Advice, as recommended by the Quality of Advice Review
- Insurers (especially those that are lacking in scale) need to be forthright with the legislators and regulators as to the burning platform they are on and the ramifications. A sense of urgency is needed to start work on solutions.
- Review the Life Insurance Framework commission caps, especially targeting a solution that will attract younger lives into the life insurance pool.
- Find sustainable settings for mental health coverage, including applying to the ACCC for relief from competition laws. Insurers can thereby work together on an industry-led solution that removes the risk of first mover disadvantage.
Far too late to fix the life insurance market. However, if there was a tiny sliver of hope or possibility anywhere it would involve getting risk specialists motivated again to write the stuff to begin with – then remunerating them PROPERLY. Nothing that hasn't been said before. Sam Perera, God luv him, is but one of many voices bleating about this over the years BUT for reasons best known to themselves the life companies did the opposite. The life coys killed the commissions far from any useful amount and they extended the responsibility period to a nonsense length of 2 years.
Nothing, let me repeat, NOTHING will resurrect the life industry until the specialist risk writes are resurrected. This means 100% upfront, 20% trails and a 1 year MAX responsibility period. AND kill the nonsense compliance that was created for the sake of keeping administrators in a job. Have screamed this adinfinitum but the gooses running the life industry haven't listened. But what do I know after near 40 years analyzing and selling this stuff . . . the 'temporary' life company execs have their full 2 minutes of experience to bear on the problem so that'll fix it.
Oh, and we need proper policies with proper contractual definitions, not the stripped down husks we have today, in income protection especially. Yep, good products and pay properly to have them marketed to clients with personal advice. Anyone see anything wrong with that? I don't.
An industry insider, not employed in an insurance company, told me last year that the insurers had detected there was no appetite in the government, and in particular the Treasury, for any revision of LIF. He went on to say that this meant that the life insurers had decided that the status quo could continue, for at least a little while longer.
So you have to ask yourself why would the CEOs of the life insurers not want to fix LIF and recover the 50% lost new business that's disappeared since LIF and other measures were introduced, including of course our friends in ASIC and their excessive compliance requirements, and 38 page risk SOAs? After all those CEOs depend on the share price for their bonuses.
The life insurer's answer to that reduction in genuine new business is not to be motivated to go to government and say "LIF is a DUD, and we want it fixed ". If you think about it, why should they, they're very happy with what they've got at the moment, or at least the solutions they have been able to find to fix that pressing problem of drastically reduced new business pool revenue.
Firstly, they've been able to gouge legacy policyholders. It makes the bushrangers in Australia's history look like amateurs. Most of our clients premiums have gone up by a minimum of 50% in the last three years, well above what could be expected from age-based increases in CPI indexation of benefits.
We know it, our clients know it, but our "friends" the insurers think they can still play this game for just a little bit longer. Right now they don't intend to be helpful to advisers and get off their backside's and go to the government and say "we think LIF could be changed ". In 2024, ASIC was supposed to investigate this "Gouging", but we've heard nothing.
Normally in business, this gouging could be something that could be referred to the a ACCC. John Howard removed those powers from the ACCC in the late 90s so that the ACCC could not look at issues surrounding breaches of good faith in the life insurance industry. That power was taken away and gifted to ASIC, and look what we got.
We need those powers reinstated to the ACCC. If it's good enough for the ACCC to be able to investigate gouging in supermarkets they should be allowed to do the same for life insurance providers.If the power to gouge was severely restricted by ACCC action, the insurers would be more compelled to go to government and demand a review of LIF
The other tool that allows our life insurance friends to continue on their merry way is Discount Based Pricing (DBP), known to most of us as the big upfront discount of 25 % or 30%. We know it's happening, but you won't find it in a PDS.
But because we know it's happening, we have a duty of care to inform our clients of how their lovely little premium in the first year WILL get a kick in the unmentionables when the discount starts to disappear in year two. And we are also obliged to inform our clients that the discount takes five years to totally disappear. Comes under the communication provisions of Standard 5, and the future predictions of standard 7
Advisers will be shot when the client complains to the regulator or AFCA. The insurer will be untouched.
Peter Johnson the AIOFP has noted that five of the seven manufacturers representatives on the board of CALI features insurers with large historical books of business, which enables them to survive by gouging, when there's been a significant reduction in advised introductions to their pools.Those 5 CEOs ensure CALI is not for turning, and frankly why should they, they know that idealogically a Labor government, funded by the industry funds, and fed ideological anti-adviser bullshit by Treasury, are not exactly about to consider developing a priority to review LIF
.
So Sam, I wish you well mate, and I would love to help if I could, but I wouldn't put any of my money on a chance of success. Not now, with Labor re-elected come Saturday.
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