Life policyholder decline attributed to PYS, PMIF

Much of the decline of life insurance policyholder numbers can be attributed to the Protecting Your Super (PYS) and Putting Members Interests’ First (PMIF) regulations, according to KPMG.

KPMG’s life insurance survey found financial results during the first half of 2021 generated a more positive outlook for the coming year as losses were reduced from the prior year.

“This reflects repricing activities across the market as well as the step change in claims costs that occurred in 2020 resulting from PYS and PMIF regulatory changes,” it said.

“The long-term claims outlook remains uncertain with respect to the extent of anti-selective outcomes arising from the opt-in changes for members under 25.”

Overall, premium income rose by 2.45% to $17.7 billion over the year to 30 June, 2021. Industry profits totalled $1 billion with $600 million generated by underlying insurance products, compared to the $1.4 billion in losses for these products during the prior year.

“The improved figures were underpinned by increased profitability across risk and non-risk products,” KPMG said.

“Notably, the losses recorded on individual disability income business fell sharply from $1.3 billion in 2020 to $0.3 billion. There were also relatively stable claims levels, with gross claims as a proportion of gross premiums falling by 1.7% for risk products.”

KPMG insurance sector lead, David Kells, said the long-term impacts of the pandemic were still uncertain but the immediate results were not as bad as some had feared.

“There was an expectation that death claims would initially increase and then begin to fall as the pandemic extended and restrictions continued, due to reduced levels of accidents and respiratory related deaths,” he said.

“However lump sum claims experience appears to have been relatively stable in 2020 compared to 2019.

“The same can be said for disability income and group salary continuance (GSC) claims, with no indication of a sharp increase in claim costs. The unprecedented actions by government to maintain jobs and support companies potentially mitigated the cost to the insurance industry.”

KPMG actuarial partner, Briallen Cummings, said the impact of COVID-19 on individual disability income insurance and total and permanent disability claims were highly uncertain both for retail and group insurance.

“Historically impacts on employment can take up to 18 months to translate into increased claims. The impact on mental health in the community also continues to be high,” Cummings said.

Kells noted the build-up of regulation, prudential oversight, enforcement action, and voluntary industry codes since the Hayne Royal Commission had a significant impact across the front, middle and back offices and increased further the risks and costs of non-compliance and reputational damage.

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