APRA mugged by commercial reality on IDII
Just a day after the Australian Prudential Regulation Authority (APRA) accused life insurers of repeating some of their bad habits around individual disability income insurance (IDII), a major life company has revealed how the regulator’s own dictates saw new business volumes decline by 30%.
NobleOak used its full-year results announcement to the Australian Securities Exchange (ASX) to reveal the impact of APRA’s dictates to life insurance companies which led to the launch of new IDII products in October, last year.
It said that since the introduction of the new IDII products in October, last year, industry wide customer purchasing activity had remained subdued across all products, with fewer customers switching insurers.
NobleOak reported a solid 35% increase in net profit after tax to $9.5 million but noted that the result had been achieved “despite subdued industry activity following the launch of new IDII products in October 2021”.
“As expected, sales in both direct and intermediated business benefited from higher customer activity in the lead up to the October deadline,” the NobleOak announcement said.
“However, new business volumes across the market have declined by over 30% since the launch of the new products, as life insurers revise their products and pricing to ensure the market positioning fist their respective risk appetites.”
The company went on to say that the market was expected to take some time to normalise and new business sales are expected to be impacted in the near term,” the announcement said.
The company pointed to a 49% increase in in-force premiums in its so-called “strategic partner” channel including NEOS and PPS Mutual.
It said it had worked closely with NEOS and PPS to launch and refine new IDII products during the year to ensure ongoing commercial alignment following the introduction of new IDII products.
“While the advised market continues to evolve, partly in response to outcomes from the Royal Commission, with the number of advisers decreasing, the Strategic Partner Channel remains an important part of NobleOak’s business.
The boost to profits generated by large premium increases for existing clients is likely to be short term and unsustainable.
The decline in new business due to lower product quality, higher premiums, and advisers ceasing insurance advice, is likely to be lasting. Personal insurance is in terminal decline.
Agreed to both your points.
I could not have said it any better than you did Anon.
While APRA might be mugs for interfering, it was the FSC who claimed they needed to increase IP and Trauma cover premiums in order to remain sustainable. The regulators weren’t going to be caught again in another fraud such as that which the FSC perpetuated with the ‘every adviser is churning’ claims which led to halved commissions and a double responsibility period.
Naturally this SHOULD have led to reduced premiums for clients but strangely did the exact opposite as FSC members took advantage of the ‘situation’.
The response, as history will show, was that advisers stopped writing and advising on insurance. The FSC members saw significant reductions in new business. (I saw reported figures of around 70%). Their response was to slug existing clients with even larger premium increases while discounting premiums to acquire new business. Perhaps they wanted to retain their massive bonus schemes, I can only suspect. But I do know that Advisers became weary of having to ‘justify’ the exorbitant annual and adhoc increases forced on their clients.
APRA might be mugs, but it was the FSC that murdered this sector of the industry by shooting themselves in the foot and by destroying their advised distribution channel.
Insurance is simply one of those things that can’t be done or shouldn’t be done for profit. It’s about spreading the load and looking after the whole cohort who are insured, with the result that – in the long run – only a very small surplus is achieved. Of course, the single best way to increase profits is to deny claims…which flies in the face of the very reason for the ‘product’. Just sayin’. We need to take a more socialist view of insurance, but we don’t ‘cos we’re locked into the business models that were run.
The decline has a long way to go