A sustainable life insurance system in the superannuation industry is two years away, as product design is still lacking, JP Morgan believes.

While insurance markets profitably peaked in 2014, based on underlying trends, life insurance products, such as total and permanent disability cover, have hit industry funds hard with the rate of claims and payments increasing year-on-year.

Siddharth Parameswaran, JP Morgan’s lead insurance analyst for Australia/New Zealand, spoke at the General Insurance Barometer, saying: “There is generous policy coverage – unfortunately generous to the distributor – with (high) remuneration arrangements and very high upfront commissions.”

In addition a deteriorating macro outlook for insurance markets over the next few years, both globally and nationally, will further reduce the returns on life insurance. Sharanjit Paddam, actuary at Taylor Fry Consulting, told the delegates: “The prospect for GDP growth is more uncertain than the past few years.”

Parameswaran echoed this assessment, stating that a “turning point” has been reached in the insurance industry. He added: “An issue is product design. I don’t think the industry has addressed that yet.”

The industry, however, is “getting better with how it deals with disability claims”. He said: “The industry is on the way to fixing this. I would say claims management is improving.”

The General Insurance Barometer touched on reinsurance rates, expecting them to fall as the alternative capital market has experienced large growth generating “abundant capacity”.

It also warned about investing in property in flood prone areas, as cyclones are expected to move much further south over the next 70 years because of climate change. Paddam said: “If you buy and invest in at risk properties you will end up with homes that are worthless.”

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