Insurer losses ‘self-inflicted’ - APRA
Australian insurers have been guilty of the self-inflicted problems of very aggressive pricing, liberal terms and conditions and underwriting standards but many failed to act until they started incurring losses, according to Australian Prudential Regulation Authority deputy chairman, Ian Laughlin.
Giving evidence before a Parliamentary Committee, Laughlin painted a picture of an insurance industry which failed to heed the regulator's warnings until companies actually started incurring losses as a result of their "self-inflicted" problems.
Asked what had given rise to the losses incurred by the industry, Laughlin said there had been two broad issues - changes in social attitude to mental health had been "a bit of a surprise" and the involvement of lawyers in claims processing had changed dramatically recent times.
"And both of those things have increased claims," he said. "The industry was not necessarily well prepared for either of those, and in some ways that is understandable.
"On the other hand there are some self-inflicted problems — very aggressive pricing, terms and conditions that were also aggressive or very liberal, and underwriting standards that also were very liberal," Laughlin said.
"So those self-inflicted issues have been apparent for some period of time. So to us they were not a surprise; they were something that we had been talking to the industry about for a number of years."
Laughlin said the net result had been losses incurred by insurers and re-insurers and increases in premium rates, particularly with respect to group insurance, of up to 150 per cent — something which was highly undesirable because the costs flowed directly through to members.
He said that while APRA had expressed its significant concerns to the insurers for a number of years, they continued to remain profitable "so there was a reluctance on their part to actually change what they were doing".
"In more recent times they have suffered some losses, and they have been much more receptive to the idea that they needed to change practices," Laughlin said.
Recommended for you
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
The firm has announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels, citing a declining market and risk adviser numbers.
