Insurance prices offered through superannuation funds and corporate schemes are now under great pressure, according to two independent sources.
Trends in the past two years have seen increased claims experience and this has resulted in upward price pressure especially on life insurance-related products.
As an indicator of this wider experience the latest Australian Prudential Regulation Authority (APRA) life insurance statistics reveal a $29 million loss for the Australian wholesale life insurance industry for the quarter ending September 2012.
This was in wholesale disability cover outside superannuation but there is evidence of this same experience occurring in areas of superannuation. A new Rice Warner report into the wholesale life insurance market says the low pricing was “never going to be sustainable and we are now seeing the emergence of more rational market pricing”.
TAL Managing Director Jim Minto said: “Fund members are starting to see premium increases for the first time in a number of years. We expect that many funds will increase their prices over the next two years, as insurers respond to heavier numbers and values of claims being reported across all types of benefits including death and disability.
“There is plenty of evidence of insurers and reinsurers suffering considerable losses from this and it is a reality that wholesale insurance prices were simply too low in the past. Some of these claims are driven by the tighter economic environment. It is marvellous to see Australians gaining great value from their life insurance protection but it does need to be appropriately structured and priced.”
In addition to public comments by APRA expressing concerns about the sustainability of the pricing in the wholesale life insurance market, public disclosures by most insurers and reinsurers have revealed adverse claims experience in the group market.
“Pricing was more sustainable pre-GFC but in recent years the industry has experienced a significant increase especially in disability-related income protection claims, often stress related” Mr Minto said.
Mr Minto said the life insurance and superannuation industries were working together to review strategies and coverage levels to create more sustainable and stable pricing of member premiums over the longer term. This might require more frequent reviews of cover limits and benefits.
