Given that the life insurance sector faced deteriorating conditions in 2019, its sustainability has been questioned by financial regulator Australian Prudential Regulation Authority (APRA) in its latest publication.
“Industry risks and challenges hampered profitability, putting the viability of some products in severe doubt,” said the report titled ‘APRA 2019 Year in Review – Safeguarding Australia’s Financial Wellbeing’.
The publication outlined APRA’s perspective on the financial environment and the major issues that have faced the insurance, banking and superannuation sectors in 2019.
APRA noted that the profitability of individual lump sum insurance and group disability income insurance (DII) deteriorated. This was attributed to poor product design and aggressive selling methods as highlighted by the Royal Commission.
At the same time, the performance of individual DII worsened for a fifth straight year, taking losses over that time to more than A$3bn ($2.07bn).
Unresolved issues in life insurance
APRA also highlighted that certain long-standing issues in the life insurance industry remain unresolved including how to deal with legacy products.
These products have become increasingly complex and expensive to administer over time resulting in poor consumer outcomes and increased operational risk for insurers, said the report
Another issue pointed out was the recent inappropriate sales of life insurance products to consumers through direct marketing channels and poor claims management processes.
Despite these challenges coupled with areas of significant underperformance and a continuing low interest rate environment, APRA found life insurers to have remained financially resilient in 2019.
The life insurance industry picture has been stable for several years even though there has been significant change in the industry’s ownership, said the report.
The industry is now majority foreign-owned after large foreign insurers, particularly from Asia and Europe, acquired or are seeking approval to acquire significant shareholdings in several large diversified insurers and niche market businesses.
As of 30 June 2019, 29 APRA-authorised life insurers were operating in Australia with no new life insurance licences granted and no licences revoked during the year.