10 June 2020
Ensuring the sustainability of life insurance in Australia
By Sean Williamson, Acting Chief of Group and Retail Partners, MLC Life Insurance
Life Insurance Impact of COVID-19
COVID-19 has re-emphasised the important role life insurers play in protecting Australians and their families in times of crisis. We make a promise for life when someone takes out a policy to be there for them when they need it most. It’s why in 2019 MLC Life Insurance paid out more than $1.3 billion in claims.
In March and April, as businesses were forced to close in response to strict social distancing measures and employees were laid off or stood down, life insurers responded to an increasing number of financial hardship requests from customers. To date, MLC Life Insurance has provided premium relief to more than 1,200 customers.
In coming months and years, insurers will also be receiving and paying an increased level of claims that will be a result of the economic impacts of COVID-19. On the one hand, this is a good thing as we know we will be helping customers in their time of need, and it’s why they take out their policy in the first place. On the other, the reality is COVID-19 will impact a life insurance industry already under pressure and place it at further risk.
APRA’s intervention in the Retail income protection market prior to COVID-19 demonstrates the watchful eye it is maintaining on the Australian life insurance market. Its latest statistics revealed that life insurers had recorded a loss of $1.8 billion for the year ending March. This result is further compounded by the $3.4 billion that life insurers have lost over the past five years through the sale of Disability Income Insurance (DII), in particular.
Life insurers have to take significant steps now to ensure they are not only sustainable in the future whilst continuing to deliver positive customer and partner outcomes. APRA reinforced this in its directive to life insurers in December last year, which called for the removal from sale of Agreed Value policies and income protection policies with fixed terms and conditions of more than five years. It also imposed an upfront capital requirement on all DII providers, amongst other changes.
Returning to sustainability
As a company that has been around for 133 years, having seen two World Wars and the Great Depression, we know what it takes to navigate challenging times with our partners and customers.
One of the key steps insurers must take in order to achieve long term sustainability is to make premium adjustments to their insurance portfolios. At MLC Life Insurance we were intending to make these adjustments earlier in the year but noting the impact of COVID-19 on customers, we delayed action. We’ve therefore made the difficult decision to adjust premiums for new customers from 15 July 2020, and for existing customers from 1 October 2020. In taking this course we have balanced many factors, including the sudden and unanticipated challenge of COVID-19.
It’s important to note that this is the first increase in premiums for new customers that we’ve announced in three years.
Like our competitors, we now need to adjust our premiums to reflect the challenge we’re facing to our sustainability. In going about this task we have tried to act fairly.
Looking ahead
Of course, adjusting our premiums is only one component of achieving a sustainable future.
We need to focus our investment in our customers and advisers, hence our recent technology upgrade. For advisers, this is about making it more efficient to sell life insurance by reducing their cost to serve. At the present time this efficiency is difficult to see due to the short-term transitional pain as we are all regrettably experiencing in adjusting to new technology. For customers, it’s about providing them with the clarity, transparency and information they need.
According to NMG’s recent COVID-19 Market Volatility Pulse survey, newfound technology efficiencies will assist advisers better interact with their clients given the lasting impacts of COVID-19. This will also counteract the increasing administrative and compliance burden bearing down on advisers.
We must also invest in product innovation – looking at benefits, definitions and product design. There are a number of ideas on the table that are being looked at and these are expected to achieve a better balance between benefits, affordability and fairness for all customers.
There are also programs that support and encourage customers as they return to health, such as Best Doctors, and return to work support programs for our claimants.
Ultimately, it is up to us to make the necessary decisions to be sustainable in the future. Our belief is that by making these tough decisions now, such as adjusting premiums, investing in product innovation and technology, we can be confident in our ability to fulfil our promises to our customers in the future.