Leas wrote that failures emerge when incentives become misaligned, basic insurance principles are overlooked, distribution realities are ignored or future systems and behaviours are not anticipated.<\/p>\n
The paper identified three broad conclusions:<\/p>\n The paper examined failed products from different markets, in particular trying to draw lessons that are relevant to some of Australia\u2019s current designs, namely:<\/p>\n United States<\/b><\/p>\n In the US, Leas reported insurers there offered level premiums for an initial period before premiums increased substantially onto an age-based stepped pattern after the guaranteed term ended.<\/p>\n …affordability today cannot come at the expense of viability Tomorrow…<\/p><\/blockquote>\n He said the products were designed to address affordability and lower entry barriers but relied heavily on assumptions about customer behaviour.<\/p>\n \u201cAlthough sold as term products and guaranteed, insurers underestimated how consumers would react to an eight-times price increase at the end of their level premium period,\u201d he wrote.<\/p>\n The result was that most policyholders left while a smaller group with higher-than-expected mortality remained.<\/p>\n \u201cThe experience with tweaking premium shapes highlights that affordability today cannot come at the expense of viability tomorrow,\u201d Leas said.<\/p>\n United Kingdom<\/b><\/p>\n In another case study, UK long-term care products were developed to help consumers meet care costs in old age.<\/p>\n Leas said claims emerged more quickly than expected and care costs increased. Some insurers subsequently raised premiums (requiring another single premium) after initial guarantee periods expired.<\/p>\n \u201cBelow the surface though, the products weren\u2019t really reviewable,\u201d he said.<\/p>\n \u201cAn initial premium guarantee term was incorporated that technically allowed repricing thereafter, but asking an older perhaps more vulnerable cohort to top up a lump sum or lose their cover was not reasonable.\u201d<\/p>\n The paper said complexity made the products harder for consumers to understand and more difficult for advisers to recommend.<\/p>\n …Innovation must be balanced with simplicity…<\/p><\/blockquote>\n South Africa<\/b><\/p>\n Leas described how severity-based trauma products emerged in South Africa in the late 1990s to address what he described as a twin problem with traditional trauma cover: windfall payments and a lottery effect.<\/p>\n He described how the product launched successfully in South Africa, but argued the design itself was not the primary driver \u2013 the insurer was simultaneously a new entrant with a health data advantage, a changed distribution model, a disaggregated risk structure and a rich wellness program.<\/p>\n “The South African culture also encouraged consumers and advisers to try new things,” Leas wrote.<\/p>\n He said the product initially failed in the UK and Australia, where advisers struggled to justify a product that sometimes paid less than competitors, compounded by higher premiums.<\/p>\n “Innovation must be balanced with simplicity,” Leas wrote. “A rational product design, even if demonstrated elsewhere, can falter if it’s too complicated for consumers to understand or for advisers to confidently recommend.”<\/p>\n …insurers thought one thing, while consumers thought another…<\/p><\/blockquote>\n Common Threads<\/b><\/p>\n Leas said a common theme across the case studies was the difference between what consumers believed they had purchased and what insurers believed they had promised.<\/p>\n \u201cBeneath all the noise sits a very uncomfortable question. Did either of the parties to a failed product, that being the consumer and the insurer, allow themselves to be misled?\u201d he said. \u201cWhat risks did consumers believe they were transferring?\u201d<\/p>\n He said many consumers believed they were buying long-term promises, while insurers often retained flexibility to respond if experience differed from expectations.<\/p>\n \u201cThe case studies often highlighted this perception gap \u2013 insurers thought one thing, while consumers thought another.\u201d<\/p>\n …The goal, then, is not to eliminate failure…but to change its shape…<\/p><\/blockquote>\n Leas also described how life insurance products often outlast the people responsible for designing them.<\/p>\n \u201cLife insurance is particularly unique in that the CEO approving a product today is, in substance, making decisions for the next CEO \u2013 perhaps three or five CEOs ahead,\u201d he said.<\/p>\n Institutions should make greater use of what he described as \u201cfailure capital\u201d, referring to lessons accumulated through decades of pricing, claims, regulatory and product experience.<\/p>\n \u201cLife insurers, however, possess something few industries do \u2013 failure capital,\u201d Leas said. \u201cThe long liabilities should correspond with the asset of long memories.\u201d<\/p>\n The paper discussed how the system’s stewards \u2013 boards, auditors, actuaries, management \u2013 each face personal incentives that make early action rational to delay. There is a conflict in that at the precise moments discipline matters most, the incentive to exercise could be at its weakest.<\/p>\n The paper concluded with a series of questions for product teams to consider when developing new products, including:<\/p>\n \u201cThe goal, then, is not to eliminate failure,\u201d he said, \u201c\u2026but to change its shape. Smaller failures. Earlier failures. More transparent failures. The kind that teaches quickly, still protects customers, and ultimately strengthens the system.\u201d<\/p>\n![\"Ilan](\"https:\/\/riskinfo.com.au\/news\/files\/2026\/06\/Ilan-Leas.png\")
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