Who’s really to blame?

Amid a good deal of fuss over how one insurance industry analyst referenced those making claims, Mike Taylor writes that the industry would be better looking at cause rather than effect. 

Sometimes what may be a statement of the bleeding obvious to those working in the insurance industry can sound harsh and callous to those unfamiliar with the commercial realities which confront it. 

Thus, when Comminsure senior analyst, Annette Torrington, apparently recounted a few industry “war stories” to an Association of Superannuation Funds of Australia luncheon in Brisbane, she found herself being pilloried in the media for her perceived insensitivity to those suffering from cancer and mental health issues. 

The “war stories” recounted by Torrington would have been familiar to anyone working in the insurance industry over the past half-decade and who had noted the manner in which total and permanent disability and other medical/health-related claims had risen exponentially to severely impact insurer balance sheets. 

As it happened, just hours before Torrington stood up to address the ASFA Brisbane luncheon, a much more senior insurance industry executive, TAL chief executive, Jim Minto, had voiced his concerns about “open-ended” disability claims which could impact insurers long after the event. 

For his part, Minto was simply reinforcing his company’s submission to the Financial System Inquiry which had called for a time-limit to be imposed to reduce insurers’ exposure to claims. 

Money Management does not know whether the content of Torrington’s address to the ASFA luncheon was vetted by the Commonwealth Bank’s media team, but the resultant media coverage clearly suggests that it surprised many of those attending the Brisbane function, most of whom would have been connected to the superannuation industry. 

According to the consequent reportage, Torrington apparently referred to cancer patients taking advantage of generous policy conditions by taking out life insurance policies which did not rely on medical checks before dying and to a client with mental health issues who made a career out of claiming from his income protection policies. 

Given that it was an ASFA function and Torrington referenced life policies not requiring medical checks, it can be safely assumed she was referring to group insurance arrangements, rather than those brokered by planners and advisers. 

Planners and advisers, had they been present, might have suggested to Torrington that the reason clients had been able to pursue such claims was because that was how the policies had been written.  

They might also have reminded her that the problems which had beset virtually every insurer in the group life space over the past three years were entirely owed to the manner in which most of those same insurers had pursued business across the previous decade. 

If the deputy chairman of the Australian Prudential Regulation Authority (APRA), Ian Laughlin had been there he might have referred to evidence he gave to a Parliamentary Committee that Australian insurers had been guilty of the self-inflicted problems of very aggressive pricing, liberal terms and conditions and underwriting standards. 

Laughlin was, of course, referring to the very things that likely gave rise to Torrington’s industry anecdotes. 

Notably, the APRA deputy chairman also referenced changes in social attitudes to mental health and the involvement of lawyers in claims processes. 

What most planners understand, however, is that it was the insurers who set the premiums and then wrote the policy provisions which enabled superannuation fund members, some of whom are cancer victims or mental health sufferers, to make the claims that have subsequently impacted their balance sheets. 

It is a commercial reality that people will seek to exploit the circumstances in which they find themselves. Insurance is no exception and the underwriters always understood that.