APRA says reform long overdue

APRA signalled a lead to the whole of the insurance sector when it scrutinised the automated solutions of life insurance in its latest annual report.

The prudential regulator says the life sector's improvement in automated systems is long overdue.

It agreed that during the past year, a number of life companies introduced automated underwriting systems to streamline the process of underwriting and accepting risk business. The impact on claims experience would take time to emerge, but this investment in improved processes was long overdue.

APRA considered this a positive move by the industry, provided appropriate underwriting controls remained in place – as it does for the general insurance sector.
The life insurance industry also continues to consolidate, largely through inter-company rationalisation of APRA licences and the acquisition of life companies and product portfolios, APRA says.

At the same time, the life sector's profitability and financial position was influenced both by the federal government's "better super” reforms and the sharp deterioration in domestic and global equity markets.

The superannuation reforms provided, among other things, tax-free benefits for certain policy holders if they transferred their assets from superannuation accumulation policies into allocated pension or annuity products.

These changes resulted in a significant flow of funds – both inflows and outflows – between different products offered by life insurers in the first half of the year, which settled down in the second half.

Life insurance assets fell for the first time in 2007/08 since 2002/03, mainly due to lower asset values caused by falls in equity prices and rises in interest rates.

Despite record inflows into superannuation products, the market share of the life insurance industry in superannuation has continued to decline, to around half its level of a decade ago.

However, risk insurance business has thrived over recent years. The proportion of risk insurance written as group business, largely through superannuation plans, has increased steadily and now accounts for more than 30 per cent of all risk insurance.

APRA found that market share of life insurance assets was concentrated in those life companies with large superannuation business. Risk insurance business operated with relatively small levels of assets.

Friendly society industry membership continued to decline, resulting in further consolidation in the industry, particularly with smaller societies. On the other hand, a small number of friendly societies have successfully established products, particularly education and prepaid funeral products that have generated strong asset growth.