If life insurance companies believe products are unprofitable then the prudential regulator should step in to investigate, argues the managing director of an advice dealer group.
Speaking to Risk Adviser, GPS Wealth managing director Grahame Evans – a former chief executive of investments for TAL (formerly Tower Australia) – questioned the notion from life insurers that some insurance product premiums need to increase because they are currently unprofitable.
“My argument here is fairly straightforward – if the products are unprofitable at the moment, where is APRA?” Mr Evans questioned. “Why isn’t APRA stopping them writing unprofitable products?
“[The insurers] are saying [they] have the worst claims and disability claims record – well they are selling disability products all the time, so is APRA just ignoring this?
“If [insurers] are selling unprofitable products at the moment, then maybe some of the directors need to actually be conscious of that fact,” Mr Evans said.
Mr Graham continued to argue with the introduction of a three-year clawback period and the reduction of upfront commissions to 60 per cent that insurers should be able to pass a saving onto consumers.
“If you break an insurance premium down, generally 50 per cent of the premium is for the actual risk itself and the other 50 per cent comes down to the cost of commission, the cost of policy issue, the cost of marketing, the cost of underwriting and their cost of administration.
“If you start reducing those costs, in essence you should be able to reduce the actual premium,” Mr Evans said.