National Australia Bank - which posted an 82 per cent slide in insurance profits - is not giving up on the industry, with chairman Michael Chaney describing it as an important part of the bank.
Questioned at the bank's annual meeting if he was confident its life insurance arm would meet expectations, Mr Chaney (left) said there had been a much higher level of claims, particularly for disability, ''which has become, if you like, flavour of the year''.
Mr Chaney said although the industry was experiencing low returns, ''to some extent you can only solve some of the problems … like, for example, changing your terms and conditions, tightening them up''.
Figures from the Australian Prudential Regulation Authority show industry profit fell 26.5 per cent over the year to September, to $2.2 billion. Australia's biggest life insurers, AMP and TAL, reported tough times during 2013, the latter pointing to higher than expected claims, including claims dating back a decade and shepherded by lawyers, rather than people giving up their policies.
''The trends are quite remarkable,'' said TAL managing director Jim Minto, pointing to larger numbers of mental health claims over the past few years as the economy has weakened. ''People are saying they won't be able to go work again, which is a dramatic judgment.''
Richard Weatherhead, principal of actuarial firm Rice Warner, said there would be a three-year period
of adjustment before the industry was sustainable. He said policies had been written for circumstances in former times: when people had one occupation for life, cancer treatments were less successful, and there was less obesity and fewer mental illness claims.
''People are now able to claim, quite legitimately, where the industry had not envisaged,'' he said. ''The fundamental problem is we got our wording wrong.''
Rice Warner estimates the cost of death and disability cover through pooled super funds rose 10 per cent in the year to June. It estimates further price rises of 20 to 30 per cent over the 2014 and 2015 financial years.
The country's biggest fund, AustralianSuper, increased its death and disability cover by 38 per cent in June, and is conducting a tender process for its group insurance.
But Alex Dunnin, of superannuation research firm Rainmaker, said the average price of super fund standard insurance fell from $2.61 to $2.48 a week in 2013, while the value of that cover went up on average 1 per cent.
''Another twist is that super fund group insurance has been getting cheaper continually for the past seven years,'' he said. ''In fact, it's now 30 per cent better priced than it was in 2008.
Mr Dunnin said fears about the fate of the industry were overblown and members were the winners. ''No insurer has gone bust,'' he said. ''This whole debate is a shot over the bow; it's a warning about the medium to long-term future.
''The big risk is that insurers and super funds overreact, jack up prices too much and scare off customers, although the winners here will be insurer profits. Indeed, the broader question is, why is a bit of competition in the insurance sector suddenly so bad?''