The Morrison government’s superannuation policy consists of devising ways to destroy the sector as part of the Liberals’ forever war against industry super funds.
At the same time it suggests ever more creative uses for super: buying homes, funding aged care, pandemic stimulus.
Fortunately the sector’s regulator, the Australian Prudential Regulation Authority (APRA), lacks the government’s political agenda and can actually focus on emerging areas of concern. In a surprise statement yesterday, APRA raised major concerns about life insurance obtained via super funds.
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It wrote to all life insurers and registrable superannuation entity licensees urging them “to address concerning trends and practices in the provision of insurance to superannuation members”.
Listed companies in the life sector include AMP (indirectly through a shareholding in Resolution Life, the old AMP Life business), Clearview Wealth, and Suncorp. Others include Zurich, AAMI, Noble Oak, Medibank Private and its affiliate AHM, Suncorp, Clearview Life, TAL Life, AIA Australia, the various insurance arms of big banks which are now mostly foreign-owned (such as MLC and Westpac) and MetLife.
Most superannuation fund members have life cover and in many cases add-ons like TPI (totally or partially incapacitated or income protection) policies. About 70% of Australians with life insurance have it via their super fund.
But the sustainability of the super life sector is now an issue. Claims problems and poor underwriting have cost the sector billions in recent years; some companies left the sector and others, such as AMP, were forced to raise capital and write off huge losses.
These problems didn’t arise from COVID-19 — they were there in 2019 and in some cases as far back as between 2012 and 2016. In the past, such problems have led to losses, big premium rises, reduced cover and what APRA called “a poor outcome for members”.
APRA says those problems have re-emerged, “accompanied by a deterioration in group life insurance claims experience and significant impact on life insurer profitability”.
Volatility in premiums and less cover are again likely to be the result.
Earlier this month APRA revealed some details of the life sector’s revenue collapse in 2020. Net policy revenue fell 9.3% to $14.4 billion but investment revenue slumped to a loss of $300 million from 2019’s total of more than $24 billion.
Total revenue for the sector plunged 69% to just $13.3 billion before releases from reserves to enable companies to meet claims and pay other costs. Total assets fell more than 35% to $132 billion (from $202 billion).
In its letter, APRA singled out individual disability income insurance (also known as income protection insurance) which it said “reported a substantial loss, primarily driven by loss recognition as adverse claims experience persists. Individual lump dum insurance, while still profitable, showed a deterioration in profit over the year.” This has been a long-running problem area within life cover.
APRA warned life insurers and superannuation funds “to take steps to ensure that insurance offerings and benefits are sustainably designed and priced, provide appropriate value for members, and adequately reflect the underlying risks”.
And it’s worse than just premium rises. APRA is sufficiently concerned that “the ongoing viability and availability of life insurance through superannuation may be at risk, adversely impacting access to life insurance cover for a large part of the Australian community”.
That is, it’s bad enough to be a systemic problem in the principal means by which Australians access life insurance.