Posted on Mar 26, 2012 by Sergio Ulloa
Australia's life insurance sector has become one of the most successful and competitive markets for both insurers and consumers in the aftermath of the 2008-9 global economic crisis. Despite this considerable progress however, industry observers insist that more work should be done to ensure the market can effectively capitalize on its considerable growth potential going forward. A panel of risk experts convened last week to discuss these issues and determined that Australia's life insurance sector needs both higher quality data records and a more efficient and simple claims process to encourage policy take up in the Oceania region further.
Speaking at the Financial Services Council Life Insurance Conference 2012
in Sydney last week, Australian Prudential Regulation Authority (APRA) member Ian Laughlin insisted that the country's group life insurance market (usually negotiated through employers) must do more to improve its pricing practices and overall claims experience to continue to build upon the industry's strong growth momentum going forward. The APRA, Australia's chief financial services regulatory body, will itself play a more active role in setting industry policy to hopefully achieve some of these objectives. According to Laughlin, the APRA plan on publishing the prudential standards for superannuation consultation, or SPS 250, in Australia quite soon. Laughlin explained at the conference to Investor Daily
that these new industry guidelines "will have a specific requirement for trustees to maintain good quality data so that the incumbent insurer and the insurers involved in a tender have a robust foundation," he said.
The APRA's decision to gradually implement these updated financial oversight mechanisms is expected to receive a relatively positive response from active Australia life insurance market players. One of which, MLC executive general manager Duncan West, was on hand at the same panel event last week to herald the APRA's increased involvement as a positive development for the domestic life insurance sector. According to Mr West, the Australian life insurance industry has been in need of a more comprehensive and detail-oriented real time management network for some time. The introduction of these guidelines could enable pricing, underwriting and claims information to be shared amongst industry players more readily, and this would in turn create a more sustainable market that could respond to events efficiently and would also drive differentiation in the risk market. "The industry is in need of much more granular detail and real time management information on pricing, underwriting and claims to enable all players in the marketplace to respond really quickly," West said.
The APRA also believe that making life insurance policy wording and claims terms more simple and easier to understand will be critical to the Australian life sector's continued development, as the ability to attract previously untapped consumer groups remains high on most company priorities. Laughlin further added that the complexity of life insurance products and the way these policies are currently pushed and managed by the industry have not helped the average Australian consumer better understand and appreciate the importance of taking out appropriate insurance coverage. "If we could find a way to stop adding bells and whistles it would make a big difference," Laughlin added.
In addition to these improved communications efforts, claims were also an area targeted for improvement in the Australian life insurance market. PricewaterhouseCoopers Australia insurance leader Scott Fergusson told conference attendees that the industry's service standards could be improved further by looking at how other sectors had achieved better claims processing outcomes in recent years. "There are some [insights] to be gained around how claims are managed from other sectors in the broader insurance space," Fergusson said, adding that "disciplines can be brought into helping the better management disability claims."
Finally the Financial Services Council (FSC) used the panel event to reiterate their commitment to tackle and hopefully abolish the practice of 'churning' in Australia's life insurance market over the next few years. While only a small proportion of local financial advisors and insurance brokers are suspected of churning, or excessive client account trading for commissions, the FSC believe that it is indeed a serious issue that is significant enough to warrant strong industry action going forward. Over the past year, the FSC has been developing a replacement business remuneration framework which will restrict Australian life insurance companies from paying upfront commissions to an insurance broker more than once within a fiver year period, per policy. FSC's rules on churn would also see the removal of 'takeover terms' for a policy or a group of policies that are transferred by a financial adviser between insurers. Financial advisers could thus only be paid level commission if 'replacement business' is arranged. The council has earmarked 1 July, 2013 as the deadline for implementing binding market standards to combat churning and other unethical insurance business practices in Australia.
While the FSC panel has indeed pointed out some areas in need of improvement, it should be noted that Australia's life insurance market remains in good health, as recent research shows. According to the results of a study released by Clear View Wealth
, an Australian financial services firm, Australian life insurers are offering highly competitive premium rates compared to their international peers. The study found that Australia's life insurance firms consistently provided the cheapest group life cover premiums, the second cheapest adviser and direct life cover premiums and the fourth cheapest consumer credit life cover premiums worldwide. Furthermore in a December report on the state of the life insurance market as of September 2011, DEXX&R, an Australian research company, found that both new premium and in-force premiums had grown substanitally. New annual premiums amounted to A$2.2 billion (US$2.36 billion), an increase of 11 percent. In-force premiums grew at a slightly lower rate of 10.9 percent to an annual total of A$9.6 billion (US$9.98 billion). These findings show that both providers and consumers are currently benefiting from the Australian life insurance industry's continued growth and development, and further progressive regulatory policing
should only work to improve upon this trend.
The Australian Prudential Regulation Authority (APRA) supervises Australia's banks, credit unions, general insurance and reinsurance companies, life insurance, and other members of the domestitc superannuation industry. The APRA was founded 1 July 1998.