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Profitability improving despite disability income slide 

Life insurers are expected to achieve “modest top line” growth this year and next despite a turnaround in disability income insurance performance appearing short-lived, S&P Global Ratings says.

Director Michael Vine says companies applied rate rises and stricter underwriting to restore disability income profitability after a long period of losses through to 2020 and Australian Prudential Regulation Authority intervention, but the performance in the first half of last year was again weak. 

“We see higher claims frequency due to mental health problems and in workplaces with difficult conditions, and this is a similar theme to recent poor performance that has come out of the workers’ compensation line for the property and casualty insurers,” he said. 

Mr Vine told a webinar last week that despite this, life insurer bottom line profitability looks set to improve due to higher investment yields, the unwinding of unrealised bond losses and some post-pandemic reserve releases where claims from covid were lower than expected. 

Top line growth is forecast at 3% this year and next, slightly ahead of recent years, with high inflation and wages growth boosting premiums, while the average size of cover has increased and heightened awareness of protection products has remained in the wake of the pandemic. 

The industry is concerned about the affordability and sustainability of its products, with claim levels on lenient product features potentially requiring higher rate rises, Mr Vine says. 

Distribution issues also remain following the Hayne royal commission, after banks exited the sector and advisers departed following changed education requirements. “Access to affordable and trusted advice is key to the sale of life products, especially retail sales outside the group schemes, and I think this is an area that is perhaps slowly improving,” Mr Vine said. 

The webinar followed the release of an S&P report, titled Australian Insurance Sector Trends: A Return to Underwriting Fundamentals, which also includes the property and casualty, health and mortgage sectors.

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