Legacy products biggest barrier to life innovation

22 April 2021
| By Chris Dastoor |
image
image
expand image

Senator Jane Hume has cited legacy products as one of the biggest barriers of innovation in the life insurance industry, while the Australian Prudential Regulation Authority (APRA) says the industry needs bear the burden of re-investment.

Speaking at the Financial Services Council (FSC), Hume said legacy insurance imposed the most significant cost on the industry.

“The FSC has conservatively estimated there are conservatively around 286 outdated life products and $22.6 billion of funds under management are allocated to aged products – now that’s a huge inefficiency,” she said.

“Even a small number of outdated products on insurance products can lead to incredible diseconomies of scale.

“Each closed, financial product requires a broad range of services to manage it and maintain it – my understanding is that these maintenance requirements for all products are not much lower than for those for current on-sale products.

“They require the maintenance of old technology and specialist accounting, audit disclosure and administrative services.”

Hume said running outdated systems led to higher costs, greater operational risks, and higher chances of fraud.

“It makes businesses pile money into managing and maintaining filing cabinets, rather than investing in product development or innovative claims management technology,” Hume said.

“When insurers spend too much time looking after aged products, they spend too little time thinking about how to best serve their customers.”

Helen Rowell, APRA deputy chair, said the industry had to be prepared to make the investments needed to get the simplification of things like legacy products.

“There’s a cost of doing that and the players in the industry need to accept they have to bear some of that cost,” Rowell said.

“Yes, there may be things the Government needs to do through regulation as well but it’s this idea of shared solutions and shared approaches rather than this is a problem that someone else needs to fix.

“And you’d get a better hearing from the Government if there was a sense there was a shared purpose and willingness to mutually work on problems.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

GG

So shareholders lose a dividend plus have seen the erosion of value. Qantas decides to clawback remuneration from Alan ...

2 months 1 week ago
Denise Baker

This is why I left my last position. There was no interest in giving the client quality time, it was all about bumping ...

2 months 1 week ago
gonski

So the Hayne Royal Commission has left us with this. What a sad day for the financial planning industry. Clearly most ...

2 months 1 week ago

A Sydney-based financial adviser has been banned from providing financial services in the interest of consumer protection after failing to act on conduct concerns. ...

3 weeks 3 days ago

ASIC has cancelled the AFSL of a $250 million Sydney fund manager, one of two AFSL cancellations announced by the corporate regulator....

3 weeks 1 day ago

Having divested its advice business in August, AMP is undergoing restructuring in at least four other departments amid a cost simplification program....

2 weeks 5 days ago