Life Insurance market stabilises despite COVID-19
The life insurance market has taken some blows in recent years, with its very survival being questioned as losses piled up.
But this year’s figures, revealed by KPMG’s annual review, shows the market has at least stabilised, with arguably a few green shoots beginning to spring up.
Perhaps surprisingly, the COVID-19 pandemic has not yet made the impact many thought it would.
First, the figures. Overall industry profits totalled $1bn in 2021. The key here is that $0.6bn was generated by underlying insurance products, a significant improvement on the $1.4bn losses for these products in the prior year.
These improved figures were underpinned by increased profitability across risk and non-risk products. Notably, the losses recorded on Individual Disability Income business fell sharply from $1.3bn in 2020 to $0.3bn.
There were also relatively stable claims levels, with Gross Claims as a Proportion of Gross Premiums falling by 1.7 percent for Risk Products.
Overall premium income rose by 2.4 percent to $17.7bn – but herein lies the catch. The number of policies declined, so remaining policyholders made up the shortfall by coping with increasing prices. The sustainability of this situation is the question.
We believe part of the decline can be put down to financially hard-pressed consumers looking to tighten their belts, given some see life insurance as a voluntary, not obligatory expense. A significant component can also be attributed to the impact of regulations such as Protecting Your Super (PYS) and Putting Members Interests’ First (PMIF). Price rises over the past 18 months have no doubt been justified however growth based on price is clearly not sustainable.
There is a need to turn around the declines in number of policies. This is challenging as it has become harder for younger people to access insurance and advice with banks exiting life insurance and falling numbers of advisors following the Hayne Commission.
So what about COVID-19? The impact was less than expected in the 2020/21 year. Many had feared in the initial stages of the pandemic there would be a surge in death claims. Yet this did not happen, with lump sum claims relatively stable in 2020 compared to 2019.
Some then felt claims would begin to fall as the pandemic extended and restrictions continued, due to reduced levels of accidents and respiratory related deaths. This did not happen either.
The same can be said for Disability Income and Group Salary Continuance (GSC) claims, with no indication of a sharp increase in claim costs. The unprecedented actions by government to maintain jobs and support companies potentially mitigated the cost to the insurance industry.
It would be premature to crack open the champagne. The long-term impact of COVID-19 on Individual Disability Income Insurance (IDII), and Total & Permanent Disability (TPD) claims experience is still highly uncertain both for retail and group insurance.
But the sector has shown resilience. The improved financial performance has been achieved while managing large programs dealing with a range of upcoming regulatory changes, including: Design and Distribution Obligations (DDO), claims as a financial service, breach reporting and complaints as well as changes to accounting standards.
At the same time, a large part of the industry has continued to work through the transition arrangements arising from the recent wave of M&A activity and an industry re-design of the IDII product.
While the Hayne Commission may seem a long time ago, regulation, prudential oversight, enforcement action and voluntary industry codes have been steadily building since the Commission, and some of the requirements kicked in at the start of this month. These all have a significant impact across the front, middle and back offices. Like any change to processes, these new requirements have, initially at least, increased further the life insurers’ operational risks.
It may be too early to say the life industry has turned the corner. But it may at least have survived the worst.