New report confirms dire situation facing insurers
The full gravity of the problems facing the Australian life insurance industry has been laid bare in a new report from major consultancy KPMG portraying falling revenues and profits and only difficult solutions.
KPMG’s annual review of the industry has confirmed an aggregate loss of $1.3 billion with the challenging conditions which had marked the previous 12 to 18 months continuing with life insurance direct premium income reducing by 6.1% to $17.3 billion.
It showed that losses on risk products grew by $1 billion and on non-risk products by $1.1 billion.
KPMG said that, across the sector, more than 40% of firms recorded losses while a total of 81% had worse figures that the previous year.
Commenting on the grim report, KPMG Insurance lead partner, David Knells, said it was always likely to be a tough 12 months for the life industry coming from a low base in 2018-19 and with the full effect of regulatory changes kicking in this year.
“Profits have fallen, or losses worsened, on almost every metric and then two-third through the financial year, the COVID-19 crisis started, the fall impact of which will be seen next year,” he said.
“The life insurance industry now faces additional significant challenges in responding to the impacts of the health crisis, while addressing serious and ongoing profitability issues,” Knells said. “Progress towards a more sustainable position requires action on multiple fronts. Critical work in addressing the future product design must be accompanied by a coherent strategy including issues such as: the pricing of in-force books; effective claims and expense management; and targeted distribution strategies.”
On a brighter note, the KPMG analysis noted that life insurance companies remained well capitalised.
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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.
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