Last week, APRA published a gloomy set of quarterly numbers showing that the life insurance industry made a total net loss after tax of $179 million for the March to June 2020 quarter on individual income protection products (IP).
The results continue to be primarily driven by higher than expected individual income protection insurance claims, driven largely by a surge in the number and duration of claims, especially for mental health conditions.
As if that wasn’t enough, the effects from COVID-19 are expected to drive increasing mental health claims in the years and months ahead as the associated isolation, financial hardship and economic impacts from the pandemic takes their toll. These mental health claims are not expected to surface until the early part of 2021 because, unlike claims for most other causes, customers typically take over a year to report claims for mental health conditions.
The life insurance industry is playing a crucial role in protecting the Australian community.
Overall, during 2019, life insurance companies paid out $12 billion to 101,821 Australians and their families. That’s equivalent to almost $33 million to 279 Australians and their families every single day, 365 days a year, providing crucial financial support when people need it most.
These claims figures emphasise just how important it is for Australian families to have the life insurance cover they need, especially at uncertain times like these.
The flip-side of this coin is that the figures also highlight the reason why many Australian households will have been seeing increases in their life insurance premiums. We know premium increases are never welcome, but like any business, life insurers need to balance their books. Premiums coming in need to cover the cost of the claims and other expenses going out. Increasing claims go hand in hand with increasing premiums.
Looking further ahead, the gloomy financial results for income protection also point to the need for a rethink. Many in the industry believe it’s time for a new generation of simpler, more affordable policies, where premiums aren’t expected to increase year after year. The focus would be on covering core needs and be more suited to the new post-COVID-19 era we expect to be living in.
Such policies would give consumers more choice, and would be all about delivering the three A’s:
- Availability of financial protection for Australians today, and for future generations.
- Affordability so that Australians can afford the coverage they need, both now and into the future.
- Assurance that your life insurance company will be there for you when you need to claim.
For now, we can only wait and see what changes the market might bring.
The current COVID-19 environment means that many customers are now facing a tricky dilemma. On the one hand, it’s never been more important to keep your life cover in place, but on the other hand, many are experiencing financial hardship and struggling with keeping up their premiums.
If this is you, then help is at hand. Life insurance companies value their customers, and all have in place financial hardship measures to help customers in financial need. Contact your life insurance company or financial adviser and they will be able to talk to you about the options available to suit your personal circumstances, whether it be a temporary short-term solution that you need, or possibly a longer-term solution to right-size your cover going forward.
The APRA Quarterly Life Insurance Performance Statistics can be found here.