You would be forgiven for missing APRA’s update on life insurance claims and disputes. Published in last month, it received little media attention at the time.
And yet the report was quite remarkable. It showed claims acceptance rates rising to historical levels, falling claims time frames and high loss/claims ratios, particularly in group insurance in superannuation. It also flagged some affordability problems with individual income protection insurance in particular.
APRA compile and publish quarterly statistics on death, TPD, trauma, income protection, consumer credit, funeral and accident insurance across individual, group superannuation and other group distribution channels. ASIC in turn publish the data as a ‘claims comparison tool’ on their Moneysmart website.
The statistics show that 85 per cent per cent of finalised TPD claims sold through an advisor were admitted, whilst the figure for group superannuation TPD claims is 89.5 per cent, up from 88 per cent in 2018. The figures for finalised income protection claims were 95 per cent and 97 per cent respectively. Only 5-6 per cent of claims were withdrawn.
The claims time frames for TPD claims have also dropped to 5.2 months and sit at 1.7 months for income protection claims. Dispute processing time frames have also dropped, although for TPD claims they still exceed the 45-day code of practice time limit.
These figures are quite exceptional and are illustrative of products that provide consumers value for money.
This is also reflected in the claims paid and net loss ratios in the data. For example, in group insurance through superannuation, the claims paid/loss ratio for TPD claims is between 75 per cent to 80 per cent. This compares favourably with most other life insurance products e.g. consumer credit, funeral and accident insurance (28 per cent, 24 per cent and 22 per cent claims paid ratios respectively) and general insurance products such as home insurance and other direct classes (66 per cent and 52 per cent net loss claims ratios respectively).
However, there is a cautionary note in the figures for income protection in particular: that some insurers may have gone too far.
The claims paid ratio for income protection through group super through the first half of the 2018/19 year was over 100 per cent, although it has now reduced to a more affordable 86 per cent. However, for individual non-advised income protection, the claims paid ratio is 107 per cent.
Further new APRA data shows that income protection products are running at substantial losses, which is not sustainable if they continue. Indeed, APRA has just now moved to impose capital adequacy requirements on life insurers and friendly societies selling income protection to individuals (not through super).
A recent KPMG report has sheeted home much of the blame to rising mental illness claims and greater consumer awareness after the Hayne royal commission. There are also warnings about potential headwinds from the removal of some default insurance cover in super and changes to unfair contracts laws.
These issues will need to be addressed to ensure the ability of life insurers and superannuation funds to continue to offer affordable insurance benefits that are value for money.
Heightened regulatory oversight after the commission and the Treasury review of universal terms and conditions in group insurance will be important next steps.
In the meantime, in this era of unrelenting bad news across the financial services industry, it should be acknowledged that at least some life insurance products, such as those provided through group superannuation, are providing substantial consumer benefits.