FY22 in review: a resilient life insurance industry re-engages on commissions
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Amid FY22’s pandemic, economic and investment market headwinds, the life industry stood profitable and resilient. Now the major players are pulling together as they go into battle over commissions to financial advisers.
Despite a choppy operating environment, APRA’s reporting revealed a profitable and stable life industry. Over the financial year to March 2022, life premium income rose a healthy 5.4% and profits exceeded $1 billion. Insurance claims performance exceeded expectations which meant reserves could be released throughout the year. Profitability even lifted above the previous years’ strong result.[1].
But 2022’s investment market volatility softened earnings for the life industry’s reserves. And rising inflation fueled cost pressures and concerns among insurers that an economic downturn may spark a new wave of insurance claims.
Conflicts of interest under fire
After two years of extensive industry consultation, November 2021 saw APRA finalise prudential standards SPS 250 Insurance in Superannuation. Taking effect 1 July 2022, the new standards aim to protect super fund members from potentially conflicted life insurance arrangements. As a result, SPS 250 will make it easier for super fund members to opt out of their life insurance policies.
Now more than ever, to retain customers, insurers and funds must present compelling reasons why members should hold their insurance in super. And deal with the wide-spread problem of underinsurance.
FY2022 also saw intense debate over the commissions paid to financial advisers for the sale of retail life insurance. At stake is the Life Insurance Framework, which protected – but capped – commission payments. It’s timely because in December 2022 Allens partner Michelle Levy will hand her Quality of Advice review to the new Albanese Government. This review of insurance commissions was a recommendation from the Hayne Royal Commission.
Life industry breaks-up with FSC
To prepare for battles ahead, June 2022 saw Australia’s life insurers announce they’re forming new peak body, the Council of Australian Life Insurers (CALI)[2]. Breaking away from the FSC, the new body seeks to focus on matters effecting the Australian life insurance industry and take carriage of the Life Insurance Code of Practice 2.0 and Life Code Compliance Committee. The code takes effect from 1 July 2023.?
More exits and consolidation
FY22 saw continued ownership shifts. In August 2021 Westpac sold its life insurance interests to TAL and BOQ completed its sale of St Andrews Insurance in October 2021. And in November 2021, Resolution Life Australasia completed a separation milestone by announcing its acquisition of AMP’s remaining equity interest. ?
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Pandemic-induced demands for better digital experiences
Lockdowns and working from home made technology integral to people’s routines – life insurance advisers, employees and customers included. In response, across the economy a raft of service providers raised the digital experience bar. Now stakeholders are also looking for time-saving and personalised digital services from life insurers.
Yet according to ACORD, the standards-setting body for the global insurance industry, as at June 2022, there was little progress. Among the 200 largest worldwide insurers, fewer than 25% had digitized their value chain. Astonishingly, more than half were yet to take any action. Not surprisingly, ACORD demonstrated that companies that embraced digitisation created value and outperformed their peers.[3]
Uncertain times call for clear communication
The disruptive events of FY22 showed that life insurance remains incredibly relevant. Because when the unexpected happens, whether a pandemic or an economic downturn, people look to insurers for solutions to help them bounce back. And as the year ahead brings continued regulatory focus and economic uncertainty, customers rely on insurers to give clear guidance and reassurance. If you’d like help telling your story, let’s talk.
[1] APRA, Quarterly life insurance performance statistics - highlights March 2022 (released 26 May 2022), accessed 5 July 2022.
[2] Riskinfo, New Life Insurance Industry Peak Body Announced, accessed 5 July 2022.
[3] L Adriano, Is insurers' digital push just hype?, Insurance Business Australia, 16 June 2022, accessed 5 July 2022.?