{"id":48991,"date":"2020-03-10T14:55:47","date_gmt":"2020-03-10T03:55:47","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=48991"},"modified":"2020-03-18T07:05:11","modified_gmt":"2020-03-17T20:05:11","slug":"life-industry-unsustainable-in-current-state-new-report","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2020\/03\/10\/life-industry-unsustainable-in-current-state-new-report\/","title":{"rendered":"Life Industry Unsustainable in Current State – New Report"},"content":{"rendered":"

The precarious nature of Australia’s life insurance industry is in a more parlous state than has been documented, according to a new report.<\/span><\/p>\n

In a paper released this week, Retender<\/a> MD, Ilan Leas<\/strong>, 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.<\/p>\n

Challenging current assumptions in his paper entitled The Sustainability Fallacy<\/a>, 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.<\/p>\n

\"\"<\/a>
Retender MD, Ilan Leas …industry may be locked into a deteriorating spiral<\/figcaption><\/figure>\n

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.<\/p>\n

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.<\/p>\n

…these numbers are understating the true extent of the losses incurred by the industry<\/p><\/blockquote>\n

\"\"<\/a>Referring to APRA\u2019s 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. \u201cHowever, these numbers are understating the true extent of the losses incurred by the industry,\u201d he says, adding \u201cReinsurers 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.<\/p>\n

…gross reinsurer losses could be double that reported<\/p><\/blockquote>\n

Other issues cited by Lees as compounding an already serious situation include:<\/p>\n