Bringing life profits back from dead

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Recent statistics point to a marked decline in life insurance industry profits in the past year, with Australian Prudential Regulation Authority (APRA) September quarter statistics showing a 26.5% decline in net profit after tax during the quarter compared to the same time last year. 

The group risk sector is performing particularly slowly, with net profit after tax $1m. Individual risk products contributed $152m while group risk products contributed negative $152m.

But the good news is after a hard year, the industry may be picking up. The September quarter profit was $441m compared with the June quarter profit of $391m – a 12.8% increase.
Revenue also seems to be on the rise, with a total of $46.7b compared with the previous year’s $38.8b.
This may in part be due to the industry starting to address the problems which plagues it.
Problems such as focusing on new business rather than retaining old customers, risk adviser Meike Suggars tells Wealth Professional.

“When I see reporting of insurance company results, all they talk about is new business. They don’t talk about retention, about retention strategies and retention rates. So I think there needs to be a shift in their focus from new business to retention. I think that they need to make it easier for advisers to service clients and keep them on the books.”

She has had issues in the past 12 months with clients’ policies lapsing due to administrative errors on the insurance companies’ behalf which has prompted them to change insurance before the original product would have been profitable for the insurance company.

“Now that’s not my problem – they need to make sure the clients policy doesn’t lapse because of an admin error.  It’s bad for me, bad for the insurance company and not really great for the client either because they potentially end up with no cover when they think they are covered.”

Suggars suggests advisers are set up with data feeds – like investments advisers have – to manage the renewal and review process better with up-to-date client management systems.

“Rather than stuffing around with admin time I could spend my time with clients ensuring their policies don’t lapse and remind them of the benefits of their policies and why they put them in place in the first instance. That’s going to help the insurance companies with their sustainability.”

The other key thing insurance companies should do is study why policies are changing and create a standard definition for ‘lapse’, she says.  

Suncorp’s life insurance division saw a 76% fall in full year net profit over the last financial year. Other life insurers are experiencing similar declines. AMP issued a second profit warning last month, due to problems in its life division, while TAL recorded a 34% fall in profit for the six months to September, due to higher than expected claims.


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