Partners Life Managing Director, Naomi Ballantyne, has called on life insurers to take a proactive approach to disability income insurance sustainability.
Ballantyne’s comments follow the recent launch of an intervention by the The Australian Prudential Regulation Authority in response to Australian life companies’ collective loss of $3.4 billion in the last five years from sales of DII to individuals.
In a letter to industry last week, APRA announced a series of measures that will require life insurers and friendly societies in Australia to address flaws in product design and pricing that are contributing to unsustainable practices.
APRA Executive Board Member, Geoff Summerhayes, said, “Insurers know what the problems are, but the fear of first-mover disadvantage has proven to be an insurmountable barrier to them making the necessary changes.”
He added: “The ultimate outcome should be more financially resilient life companies and more sustainable products for policyholders. Unless insurers stop losing hundreds of millions of dollars each year, it’s only a matter of time until individual DII – and the protection it provides – is no longer available at all.”
Ballantyne says the risk that DII may ultimately no longer be an available product to consumers is part of the reason why Partners Life is urging industry to talk and think about its own disability income book now.
She said New Zealand doesn’t have the same issues regarding DII as Australia but added that like Australia, the DII product in New Zealand has become the one that over-insures the most.
Although regulators have had to intervene in Australia, Ballantyne says the industry has the opportunity now to take the initiative before the New Zealand regulators have to get involved.
“What we have seen at Partners Life is that the industry is deteriorating and our claims experience is following suit,” she explained. “This is what happened in Australia. If we don’t have a response quickly in our industry we’re going to have exactly the same 20-30 years experience as Australia had before a regulator steps in.”
She expects New Zealand regulators would not take as long to act because they can see what is happening in Australia and will ask New Zealand’s industry what it plans to do to prevent it happening here.
“I think these are moments in time right now because we’re starting to experience it. We’ve seen what’s happening in Australia and what the regulator’s response has been,” said Ballantyne.
“There have been a number of research papers in Australia trying to unpick the product problems that have led to this issue and so we’ve got a wealth of knowledge. We don’t need to go through 30 years ourselves to figure out what we’ve done wrong but someone’s got to do something.”
“We’ve seen what’s happening in Australia and what the regulator’s response has been.”
Ballantyne said the industry needs to think about how it would respond to prevent the issue around DII in Australia happening in New Zealand and hopes it will be brave enough to tackle it as an industry issue rather than waiting for a first-mover to act.
“The problem is obviously the product is still profitable and it’s not a 30 year history. It’s a two year experience which may or may not, depending on the company, be an experience they think is a trend.”
She added: “I think what we should do as an industry or at least as individual companies, is look at over-insurance within our products – where is there opportunity for a client to either be better off to go on a claim than continue to be employed in a job they’re in or run the business they are in.”
Ballantyne stressed that taking a proactive approach in New Zealand is the difference between having products that don’t over-insure people and a regulator stepping in.
“We’ve got a window of opportunity not to have regulators impose things like extra capital requirements if you continue to sell the product because that’s the thing that might actually mean that companies walk away from the product altogether.”
Ballantyne said products do the right thing where there is no over-insurance but that all products currently have the capacity to over-insure.
Click here to view APRA’s letter.