Warning on Income Protection losses
The Australian insurance industry should heed the lessons of the 1990s and take action to restore profitability on retail income protection, a leading insurance executive has warned.
Statistics released by APRA have shown that across the industry, income protection products produced a loss of more than $200 million during 2011. Further, reinsurers have sought additional capital from overseas because of the worsening experience on income protection products.
Insurance Industry Executives say the industry cannot afford to sustain this sort of loss. The most important thing for an insurer is to be sustainable. We need to price sustainably to deliver on our promise to consumers; that is, to pay claims.
They believe the current market results could be attributed to three key areas:
- Worsening claims experience, with an increase in claim numbers and a lengthening of claim duration
- Widening of terms, without adequate premium adjustment
- Relaxation in medical and financial underwriting levels
They added that the problem was compounded by the fact that insurers had not adjusted their pricing to offset these changes.
They think there is some reticence to move on price because of the competitive nature of the market and this will lead to significant remedial action by those that have been most aggressive however they advised that they do not believe this is in consumers or advisers long term best interests