Submission to the Parliamentary Joint Committee on Corporations and Financial Services
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Life insurance industry
Submission 32
Submission to the
Parliamentary
Joint Committee on
Corporations and
Financial Services
Inquiry into the Life
Insurance Industry
2016
For further information, please contact:
David Miles
Principal | Willard Public Affairs Pty Ltd
Level 13
84 Pitt Street
Sydney NSW 2000
Ph: +61 2 9231 2200
Mob: +61 418 217 799
Email: david.miles@willard.com.au
This document © AIA Australia Ltd. All rights reserved.
Life’s better with the right partner®Life insurance industry
Submission 32
Contents
Contents
Contents������������������������������������������������������������������������������������������������������������������������������������������������������������������������2
Executive Summary�������������������������������������������������������������������������������������������������������������������������������������������������������4
Default opt-out cover within superannuation.........................................................................................................................................................................5
Claims management practices...............................................................................................................................................................................................6
Education and financial literacy..............................................................................................................................................................................................6
Driving improved member value through Experience Share Arrangements.........................................................................................................................6
External review and oversight.................................................................................................................................................................................................7
The role of health, wellness, and return to work programs ..................................................................................................................................................8
Recommendations...................................................................................................................................................................................................................9
About AIA Australia�����������������������������������������������������������������������������������������������������������������������������������������������������10
Recognition as an industry leader.........................................................................................................................................................................................11
Introduction�����������������������������������������������������������������������������������������������������������������������������������������������������������������12
Why is the life insurance Industry important for Australia?.................................................................................................................................................13
The unique relationship between life insurance and superannuation ................................................................................................................................14
Terms of Reference����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������16
a. the need for further reform and improved oversight of the life insurance industry;.........................................................................................16
Opportunities for improved oversight....................................................................................................................................................................................16
Registering the Life Insurance Code of Practice...................................................................................................................................................................17
Improved Claims Reporting and Data...................................................................................................................................................................................17
Establishing an Independent Claims Assistance Service ....................................................................................................................................................18
Strengthening group insurance.............................................................................................................................................................................................19
Sustainable and consistent TPD definitions in superannuation...........................................................................................................................................19
Finding the right balance for insurance cover and retirement savings................................................................................................................................20
Removal of state-level stamp duties on premiums..............................................................................................................................................................21
Encouraging rehabilitation and medical support..................................................................................................................................................................21
Rationalisation of legacy products........................................................................................................................................................................................22
b. assessment of relative benefits and risks to consumers of the different elements of the life insurance market, being direct insurance,
group insurance and retail advised insurance;..................................................................................................................................................22
Direct insurance....................................................................................................................................................................................................................23
Retail-advised insurance.......................................................................................................................................................................................................23
The benefits of retail-advised insurance...............................................................................................................................................................................24
The introduction of professional standards..........................................................................................................................................................................24
Group Insurance....................................................................................................................................................................................................................24
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 2Life insurance industry
Submission 32
Contents
Benefits..................................................................................................................................................................................................................................24
Member awareness and understanding...............................................................................................................................................................................25
Providing appropriate cover without inappropriately eroding member balances................................................................................................................26
Policy cessation rules............................................................................................................................................................................................................26
Cover for younger members..................................................................................................................................................................................................27
Multiple member superannuation accounts that include insurance cover..........................................................................................................................28
Appropriateness of Experience Share Arrangements..........................................................................................................................................................28
c. whether entities are engaging in unethical practices to avoid meeting claims;...............................................................................................29
AIA Australia Internal Review and ASIC Claims Review.......................................................................................................................................................29
AIA Australia Code of Conduct ..............................................................................................................................................................................................30
AIA Australia’s Claims Philosophy........................................................................................................................................................................................30
AIA Australia’s Consulting Medical Officers .........................................................................................................................................................................30
Best practice claims management .......................................................................................................................................................................................31
Regular product reviews........................................................................................................................................................................................................31
Culture ..................................................................................................................................................................................................................................31
AIA Australia Remuneration Arrangements ........................................................................................................................................................................32
Trustee engagement .............................................................................................................................................................................................................32
d. the sales practices of life insurers and brokers, including the use of Approved Product Lists;.......................................................................32
Sales practices of life insurers and brokers.........................................................................................................................................................................32
Approved Product Lists (APLs)..............................................................................................................................................................................................33
e. the effectiveness of internal dispute resolution in life insurance;.....................................................................................................................33
f. the role of the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority in reform and
oversight of the industry.....................................................................................................................................................................................34
Appendix 1�������������������������������������������������������������������������������������������������������������������������������������������������������������������35
Industry Awards.....................................................................................................................................................................................................................35
Group Insurance Statement of Intent....................................................................................................................................................................................36
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 3Life insurance industry
Submission 32
Executive Summary
Executive Summary
As one of the largest life insurers in Australia, protecting over Direct (Retail non-advised):
3.5 million people, AIA Australia is proud of the work we do
supporting individuals and families through their toughest • Group insurance within superannuation, and via employers,
times. However, we recognise that given the importance of what provides a level of cover to meet the basic needs of
we do, the standards we must set ourselves as an industry individuals;
must be of the highest nature. We must continually look to • Retail-advised insurance involves tailored, specialised advice
improve our products and services to meet the needs and provided by an expert who designs a comprehensive solution
expectations of Australians. Therefore, even though we paid to ensure the individual is comfortably insured; and
over 10,000 claims last year, even if one person or family has
a bad experience, then this is a critical issue that we need to • Direct insurance is an accessible and easy way for individuals
address. When we look at what we do, while we remain resolute to take out higher levels of cover without the need to consult a
in our commitment to make a difference in people’s lives when financial adviser
they need it most, we acknowledge that we have things we can
improve and don’t always get it right. Size of Australian Life Insurance market by channel*
Importantly though, if we identify something has not been in 22%
line with expectations, we remediate the issues immediately
and learn from this moving forward. We recognise there is 40%
significant interest in our industry and a strong community
demand for insurers to do better by all Australians; to
continually lift our service standards, remove unnecessary
complexity and offer improved and tailored products.
38%
We are committed to engaging with this committee,
Group (wholesale) Retail - advised Direct - (Retail non-advised)
consumers, industry and other stakeholders to help drive
these opportunities for improvement and to effect improved
*For the year to June 2016 by inforce premium.
outcomes. The reach of our operations and the industry as Source: Strategic Insights (Plan for Life) 2016.
a whole, places us in a unique position to create economic
and social benefits for our customers, partners and society. AIA Australia strongly supports financial advisers and the
AIA Australia pays more than $4 million in benefits to Australian important role they play in helping people access insurance,
policyholders and their dependents every working day. but also helping to ensure specific needs of individuals and
dependents are met. We must continue to protect this channel
Life insurance is essential for Australians - improving lives and the financial sustainability of financial advisers and their
and protecting livelihoods. It is not something which is used practices. However, given there is significant reform already
every day, and some people may never need to make a claim. underway in those areas, such as around the Life Insurance
Yet it provides people with peace of mind, knowing that Framework (LIF) and educational standards applying to
there is something to fall back on should the unexpected or financial advisers, this submission is focused more on the
unfortunate occur. recent inquiries into Group Insurance.
When the unexpected or unfortunate does occur, we want AIA Australia have provided a total of 20 recommendations
people to have confidence in their benefits and entitlements, throughout this submission, however we believe that the
including support available to them such as occupational immediate focus should be on the following areas in which the
rehabilitation programs. We also want this process to be fast, industry can be proactive to improve outcomes for consumers:
unobtrusive and stress free. Our claims philosophy is to ensure
that every claim that should be paid, is paid and we have built a 1. Default opt-out cover within superannuation;
claims process that looks to support and assist claimants at a 2. Claims management practices;
time of claim. We know we still have work to do in these areas
and also in helping educate people to understand life insurance 3. Education and financial literacy;
in general. Specifically, we identified a systemic issue around
4. Experience Share Arrangements;
people knowing what insurance cover they have and what
benefits they are entitled to. 5. Providing adequate cover without eroding member
balances;
In Australia life insurance is provided to consumers
predominantly via three channels; Group, Retail-advised and
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 4Life insurance industry
Submission 32
Executive Summary
We have also identified the following longer-term opt-in system for life insurance within superannuation could
considerations that will require government support: see the percentage of insured individuals fall from around
90% to as low as 18%, leaving up to 13.5 million Australians
6. External review and oversight of the industry; and without protection.4
7. The role of health, wellness, and return to work programs. We recognise that the default cover design is not perfect,
where blanket coverage might mean that some people are over
Default opt-out cover within superannuation insured while some are under insured. Trustees, regulators,
Insurance within superannuation, on an opt-out basis, has and insurers must regularly revisit the design principles around
delivered unquestionably positive results for the Australian default cover to seek an appropriate balance between the
community, for individuals and their families. It is a major types of benefits offered, the level of cover required to meet
vehicle for affording millions of Australians with cover, and basic needs, and the impact of premiums on superannuation
protecting Australians’ retirement savings should they suffer accumulation.
loss through death or disablement. It provides a safety net for
Notwithstanding, it would be a mistake to propose people under
people who may not have considered, qualified or otherwise
30 do not need life cover. Young people do need cover – but they
been able to afford, life insurance individually.
may need relatively more TPD and/or Income Protection, and
The evolution of group insurance over the past 20 years has proportionately less life cover. Many superannuation funds and
contributed to the 92% of the working population afforded insurers are moving to address this mismatch by considering
some type of insurance coverage that would otherwise not be and implementing measures to better tailor cover based on life
in place.1 In the five years between 2011 and 2016, 81 cents for stages and associated needs.
every dollar received by group insurers in premiums was paid
We know that our industry must improve and develop clear
out in claims.2 This demonstrates the excellent value of group
guidelines for when people become ineligible for cover, and
insurance to Australians. In this submission, we outline our
ensure that when this happens their premiums cease being
recommendations to ensure this system remains sustainable,
deducted from their superannuation account. As part of the
provides appropriate cover, whilst minimising impact on
Industry Taskforce, an AIA Australia instigated group to develop
retirement savings. Some of these include tailored cover, clear
industry-led solutions, we are working to develop best practice
guidelines on policy cessation rules, and account consolidation.
guidelines in this area.
As our population ages, governments are under increasing
AIA Australia believes the regulatory changes implemented
pressure to deliver age pensions, disability and carer payments,
by the government including myGov, and changes to inactive
and home care. Superannuation and life insurance can help
superannuation thresholds, as well industry engagement, have
ease that pressure on the taxpayer. Life insurance is part of
had a positive impact on account consolidation and we expect
the private sector solution to these concerns, transferring
this trend to continue. AIA Australia note there has been a year-
funding responsibility and risk from taxpayers and the public
on-year increase in the number of individuals with only one
purse, to the individual and life insurers. For example, most
superannuation account, indicating a reduction in unintended
Income Protection products, both in and outside of super,
duplicate cover.
include superannuation contributions as part of claim payments
- enabling people to continue to save for their retirement Our industry is constantly evaluating the best way to balance
while recovering from health setbacks. Individuals without providing the appropriate level of insurance cover against
any cover are more likely to be reliant on social security and protecting retirement savings but more could be done.
welfare, increasing the cost to government. Group insurance
reduces the social security cost to government by at least $403
million annually.3
Default cover is a safety net and should remain opt-out.
The deeply embedded relationship of insurance within
superannuation means that the issue of underinsurance
in Australia is now one of adequacy of cover, not whether
individuals hold cover. Careful consideration is necessary
1 Rice Warner – Underinsurance in Australia – published July 2015
as reform could inadvertently exacerbate underinsurance
2 APRA Statistics summary 2011 to 2016
issues, leaving many without protection. For example, our 3 ASFA Media Release, Group Insurance reduces government spending on social
actuarial modelling shows that moving from an opt-out to security by $403 million annually: new ASFA report, published 28 August 2014
4 AIA Australia actuarial modelling – October 2016
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 5Life insurance industry
Submission 32
Executive Summary
Claims management practices Life insurance has long been considered inherently difficult
for people to value and understand. For many, insuring their
At AIA Australia, we understand every claimant is unique.
income seems much less tangible than insuring a physical
We focus on open communication, as well as high levels of
asset such as their car or home. For others, the nature of life
service and support, in order to tailor a solution that best
insurance can be quite confronting and unpleasant to consider.
meets the needs of each individual. Embedded in our claims
As a result, many would rather avoid considering the risk
philosophy is a focus on ability, rather than disability, and
altogether, let alone taking active steps to insure against it.
the knowledge that claimants need both our sensitivity and
Of those who do engage, a ‘set and forget’ approach is often
professionalism. This guides the interactions we have with our
adopted, failing to account for changing personal needs and
clients every day.
family circumstances.
We know we can further improve our policy definitions and
This means there remains a significant awareness issue for
claims handling processes so that they are clearer, and
many people, particularly at an earlier age where engagement
that people understand what they can claim for and how
with insurance and financial services is generally low. In many
to claim - with a process that is seamless and minimises
instances this is where insurance is most important, because it
stress. In particular, as part of the ASIC Claims Review, it was
is protecting income over a lifetime.
recommended that AIA Australia can further improve on some
of our claims handling timeframes and reduce requests for We aim to continue collaboration with industry and our
unnecessary information. We have begun to address these partners to actively engage and educate consumers to better
issues as part of the implementation of the Life Insurance Code understand the role of insurance and what they are covered
of Practice. for. Educational tools, Apps and other technology solutions can
provide additional avenues to connect with and better engage
However, in general our independent review reported that
the public. Another proposal to address this issue is via industry
our claims handling practices were sound, consistent and
collaboration with Government to deliver programs in schools
followed good practice. There was no evidence of misconduct,
that could help bring enhanced financial literacy to the next
no systemic claims handling concerns, and no evidence
generation.
that AIA Australia’s remuneration practices incentivised
negative behaviours such as delaying claims decisions, or
inappropriately denying claims. Driving improved member value through
Experience Share Arrangements
We recognise that sometimes disputes will occur. In these
Experience Share Arrangements are clearly documented
circumstances, an effective Internal Dispute Resolution
contractual arrangements between insurers and trustees,
Committee is an important avenue for consumers to have their
mostly for very large superannuation funds where the insurers
concerns heard and their claims reviewed, strengthening the
and reinsurers are exposed to significant pricing risks. They
customer experience.
set out agreed terms under which an experience share would
We believe that more can be done to inform consumers about be paid and the intended purpose of any experience share that
these services, as well as to educate them around life insurance becomes payable, for example:
generally. Improved financial literacy will result in a greater
• If claims are lower than expected, the cost savings will be
understanding, reduced dissatisfaction, and more engaged
passed back to members, whilst the cost of higher than
decision making. In conjunction with insurers making the
expected claims will be covered by the insurer; and
claims process as simple as possible, the establishment of
an industry-funded Independent Claims Assistance Service to • It regulates the maximum profit an insurer can make,
assist members with inquiries about claims processes, lodging ensuring value for members.
claims, and claims decisions, will help drive better claims
service across the industry. Reinvesting the surplus funds or ‘profits’ allows us to innovate
and drive improvements for our members.
Education and financial literacy Experience share may also be invested in improving the
As insurers we must remove unnecessary complexity, and member experience in both underwriting and claims touch
improve transparency and understanding of products and points – either through transforming the service processes
services we provide. It is in everyone’s interest for consumers to or by investing in technology such as online underwriting
properly understand the insurance cover they have, as well as
what is not covered.
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 6Life insurance industry
Submission 32
Executive Summary
or electronic claims lodgement. It has been reported in the • The SCT is a government-funded statutory authority that
media that any experience share has not been credited back deals with complaints relating to decisions and conduct of
to member accounts, however when used to reduce future trustees and insurers, amongst others.
premiums payable and reduce the direct cost to the fund of
investing in new services or technology, this ultimately has the In recent years, the industry has been subject to increased
same impact. scrutiny by the expert oversight bodies noted above, including:
Experience share arrangements are an efficient mechanism • 2014 ASIC Review of life insurance advice;
to pass back the benefits of any favourable claims experience • 2014 Financial System Inquiry;
to members, are well documented, enjoy high visibility and
transparency across insurers, reinsurers and trustees, better • 2014-2016 Scrutiny of Financial Advice;
align the interests of all parties and ultimately aim to improve
• 2015 Life Insurance Framework;
member outcomes over time either through reduced premiums
or through improved services where an experience share • 2015 amendments to the Insurance Contracts Act;
is payable.
• 2016 Productivity Commission Inquiry into Superannuation;
External review and oversight • 2016 Productivity Commission Inquiry to develop alternative
We know that we and the insurance industry can always default models;
do better but believe there are the right mechanisms in
place in regards to oversight and regulation of our industry. • 2016 Treasury Review into Dispute Resolution and Complaints
Notwithstanding, we must all work together to strengthen Framework;
them in order to better service consumers and help restore
• 2016 Life Insurance Remuneration Arrangements
community confidence and trust. Numerous inquiries into
Regulations;
this space over recent years have resulted in activities and
improvements currently being implemented. We believe an • 2016 ASIC Review of Life Insurance Claims Handling; and
assessment of these reforms is an important step before
further major change is implemented, particularly if it risks • 2016 APRA information request on claims oversight and
reducing Australians’ insurance cover. Even with current broad governance.
coverage, Rice Warner calculates that underinsurance in life
The industry has responded positively to these regulatory
insurance costs the government $2 billion annually.5
reviews, and sought to address government and community
AIA Australia, and the industry as a whole, have embraced the concerns with industry-led initiatives, including:
need for and are actively engaged with reform. A brief overview
• 2015 Trowbridge Review;
of the key respected, independent government bodies in place
and recent scrutiny helps provide context: • 2016 ASIC Lapse Exception Reporting;
• APRA is a statutory authority and the prudential regulator • 2016 Life Insurance Code of Practice; and
of the financial services industry, it is funded mostly by
the industries it supervises and focuses on ensuring that • 2016 Insurance in Superannuation Industry Working Group.
institutions remain financially sound and able to meet their
AIA Australia aim to be an industry leader in driving positive
obligations to fund members and policy holders;
industry changes, as demonstrated by our:
• ASIC is an independent government body that acts as
• Our ongoing active engagement with industry bodies and
Australia’s corporate regulator, their role is to enforce and
regulators;
regulate company and financial services law to protect
consumers, investors and creditors; • The establishment of the Group Insurance Summit from
2012 – an annual platform to help address issues, trends and
• The FOS is an industry-funded, independent, and accessible
challenges facing the Group sector that is now co-hosted with
dispute resolution mechanism for consumers who are
TAL;
unable to resolve complaints with member financial services
providers; and
5 "Underinsurance in Australia 2015” - http://ricewarner.com/australias-relentless-
underinsurance-gap/ (Last accessed 21/11/16)
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 7Life insurance industry
Submission 32
Executive Summary
• Being a founding member of the Shared Value Project from In March 2014, AIA Australia introduced ‘Vitality’ – the world’s
2015 – an initiative to drive addressing social issues through leading scientifically-backed health and wellness program - to
business strategy; the Australian market. AIA Vitality aims to be a catalyst for real
change to improve the health and wellbeing of Australians.
• Hosting the 2016 Vitality Summit – which discussed the Through AIA Vitality, we are able to incentivise improved
role financial services can play in championing a healthier health outcomes for our customers, reducing claims costs
Australia; and and improving policy retention rates as an outcome – sharing
• Initiating the 2016 Insurance inside Superannuation the benefits back to customers through reduced premiums.
Roundtable and Taskforce – which brought together the We are very proud of our AIA Vitality product that works with
insurance and superannuation industry to develop industry- consumers to make real change to their health, and provides
led solutions, with perspectives from regulators like ASIC and support and incentives to live a healthier, happier life.
APRA, Treasury, the Financial Services Council, ASFA, AIST, Additionally, our claims philosophy focuses on ‘ability rather
IFF, ISA, CEOs of life insurers and trustees. than disability’ by helping those who claim return to work,
The industry and our customers are better placed as a result. where possible. Along with other occupational rehabilitation
AIA Australia is looking forward to seeing how these reforms and work readiness initiatives such as RESTORE (which is a
and initiatives progress, and for their benefits to be further felt work readiness and wellness program aimed at the effective
by consumers and the industry. management of mental illness claims), we can further improve
the wellbeing of our customers and not just pay claims.
The role of health, wellness, and return to AIA Australia looks forward to working with the committee
work programs and to having an open dialogue with committee members and
We recommend supporting programs that seek to return industry stakeholders about continuous improvement for life
people to productive work as soon as possible, which research insurance products and practices for Australians. The industry
shows improves their mental health and overall well- has a genuine desire to help Australians and to offer value for
being. Research indicates that if an employee is off work for money products that protect our customers and their families.
20 days, then they have a 70% chance of returning to work.
If they are off work for 45 days, the chance of returning to work
reduced to 50%. After 70 days off work, the chance of ever
returning to work is only 35%.6
Removing the legislative barriers that currently prevent life
insurers from funding medical treatment, and some forms
of rehabilitation, is one way to better support rehabilitation
programs. Advances in treatment and understanding of
workplace injuries has resulted in earlier intervention and
assistance to gain a better outcome for the injured worker.
Under the current system, primary health care payments
are not permitted, with insurers restricted to occupational
rehabilitation rather than medical assistance. This is not in the
best interests of Australia or Australians. We strongly support
innovation to provide people with more affordable insurance
cover, improved health outcomes, improved productivity and
contribution to society.
6 AIA Australia – A critical equation: balancing Australian worker health and company
wealth – August 2013
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 8Life insurance industry
Submission 32
Executive Summary
Recommendations
Consistent with our executive summary, the body of our submission contains further detail around the following recommendations:
Key recommendations
1 Automatic default life insurance in superannuation, provided to members on an opt-out basis should be maintained; Pages 15 + 25
Industry work to make claims handling processes simpler and swifter, including the establishment of an industry-funded Page 19
2 Independent Claims Assistance Service to assist members with inquiries about claims processes, lodging claims, and
claims decisions.
Industry to explore education and deliver engaging education solutions and work with Government to improve the Page 26
3
financial education of Australians;
Industry to be more transparent about Experience Share Arrangements and ensure members are receiving the benefits Page 29
4
such arrangements can provide;
Industry to examine policy cessation rules and develop best practice guidance, and to engage with government Page 27
5 on potential regulatory reforms to enhance the obligation of employers to notify superannuation funds in certain
circumstances;
Assess the effectiveness of recent government reforms, such as myGov and changes to inactive superannuation Page 28
6 thresholds, in reducing multiple superannuation accounts and work with industry to determine whether further reform is
required;
While maintaining a commitment to further improvement, existing programs for reform should be fully implemented and Page 17
7
assessed before further regulatory or legislative reforms are contemplated;
Industry to collaborate with Government to examine providing guidance that supports the adoption of occupational Page 22
8 rehabilitation and return to work support as part of life insurance benefits, and examine ways to reduce legislative
barriers preventing life insurers from funding medical treatment and some forms of rehabilitation;
Further recommendations
In consultation with industry, a minimum standard definition of ‘total and permanent disability’ should be supported Page 19
9 through either amendments to the SIS Act, or through government issued guidance to superannuation trustees, while
allowing flexibility for trustees to tailor the definition to suit member needs;
Industry to explore more innovative solutions to ensuring Australians are adequately insured, including making it easier Page 20
10 to take out additional cover through voluntary superannuation contributions, and engage with government on possible
changes to tax treatment of premiums;
The Life Insurance Code of Practice should also be formally registered and approved by ASIC; and a similar code should Page 17
11
be developed with aligned obligations for trustees;
Industry to collaborate with APRA to establish a centralised Life Insurance Claims Register to increase transparency Page 18
12
and accountability;
Industry to collaborate with Government to develop best practice guidance for insurance premiums as a proportion of Page 26
13
superannuation contributions or superannuation balance;
Industry to collaborate with Government to examine the development of best practice guidelines on the appropriate levels Page 27
14
of cover for younger members;
Recommends the Financial Ombudsman Service and Superannuation Complaints Tribunal resources be strengthened Page 34
15
and refer complainants to company Internal Dispute Resolution processes in the first instance;
16 Support the reintroduced Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016; Page 34
Industry to lead action around solutions to provide for the rationalisation of legacy or out-dated products in an ever Page 22
17
changing financial, legal and social environment;
Support the recommendations of the Trowbridge Review for the industry to work with ASIC to produce best practice guidance Page 22
18
that would recommend licensees increase the number of retail insurance providers on their Approved Product Lists.
19 Life insurers to provide appropriate assistance to their adviser partners during this transition period. Page 24
20 Consider the removal of state-level based stamp duties on premiums to improve the affordability of life insurance. Page 21
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 9Life insurance industry
Submission 32
About AIA Australia
About AIA Australia
AIA Australia is a leading independent life insurance
specialist with over 40 years’ experience in Australia. “Our company employs more than 800
We protect the financial health and welfare of more than
Australians and is part of the AIA Group,
three million Australians. the largest independent, publicly listed
pan-Asian life insurance group."
AIA Australia partners with industry superannuation funds,
major financial institutions and financial advisers to offer
life, income protection, total and permanent disability and "AIA Group is nearly 100 years old and
crisis insurance. is present in 18 markets across the
In 2015, AIA Australia paid more than $1 billion in claims – over
Asia Pacific."
$4 million every working day. In the last five years, we have
supported more than 51,000 Australians and their dependents
with direct payments, and with rehabilitation and return to
work assistance.
18
18
MARKETS
MARKETSMACAU 1982
CHINA 1919
HONG KONG 1931
CHINA 1919 INDONESIA
MACAU1984
1982
HONG
SINGAPORE KONG 1931KOREAINDONESIA
1931 1987 1984
SINGAPORE 1931 KOREA 1987
THAILAND 1938 TAIWAN 1990
THAILAND 1938 TAIWAN 1990
PHILIPPINES 1947 VIETNAM 2000
PHILIPPINES 1947 VIETNAM 2000
MALAYSIA 1948 INDIA 2001
MALAYSIA 1948 INDIA 2001
BRUNEI 1957
BRUNEI 1957 SRI LANKA 2012 2012
SRI LANKA
AUSTRALIA 1972 1972MYANMAR
AUSTRALIA *
2013* 2013
MYANMAR
NEW ZEALAND
NEW ZEALAND 1981 1981 CAMBODIA
CAMBODIA*
2015* 2015
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 10Life insurance industry
Submission 32
About AIA Australia
As part of AIA Group, our Purpose is to play a leadership role Recognition as an industry leader
in driving economic and social development across the region. AIA Australia is widely recognised as an industry leader.
At a local level, AIA Australia is committed to being ‘the best The Australian Life Insurance Awards recognised
in Life’ and to making a positive difference in people’s lives; AIA Australia as Life Insurer of the Year in 2015 and Life
a philosophy we not only apply though our life insurance Insurance Product of the Year in 2016.
and AIA Vitality, but through our community initiatives and
partnerships that help our employees, their families, the local This year our Australian chief executive was named
community and society at large live longer, healthier and Australian Insurance Executive of the Year in recognition
better lives. of his leadership and ability to forge strong relationships
with stakeholders.
AIA Group and AIA Australia have a philosophy of helping
customers in the broadest sense, including to assist them to At the Australian and New Zealand Institute of Insurance
live healthy lifestyles. It’s good for our customers and for our and Finance Awards, AIA Australia was named Women’s
business if our customers are healthy. Employer of the Year in 2016, and Life Insurance Company
of the Year in 2015. Our Term and TPD insurance was Money
AIA Australia is a founding member of the Shared Value Magazine’s Best of the Best in 2015 and the Australian
Project and a true believer in the philosophy of Shared Value. Financial Review’s Smart Investor ranked our Term/TPD
Shared Value is a business strategy that aims to create product as the best in 2014 and 2015. Further, AIA Australia,
identifiable economic benefit in tandem with measurable together with one of our superannuation partners, received
improvements on a social or environmental issue. In 2016, the Consumer Innovation Award in the Financial Services
AIA Australia won the Shared Value Award as a ‘company to Council Industry Awards in 2016 for the online claims
watch’ for our efforts to embed shared value as an operational management tool ‘eClaims’ that makes it easier for
and cultural philosophy. Two examples of our commitment consumers to lodge claims and manage claims. For further
to shared value innovation include our AIA Vitality, and detail around our recent recognition, see Appendix 1.
AIA Rehabilitation and Return to Work programs. Our shared
value approach transforms the insurance market – creating
customer centricity and social purpose.
AIA Vitality is an award-winning health and wellness program
that provides the knowledge, tools and motivation to achieve
a healthy lifestyle, wellness and fitness. We know that two out
of three adult Australians are either overweight or obese, and
AIA Vitality seeks to incentivise behavioural change through
a reward system to encourage people to lead healthier and
longer lives.7
7 AIA Vitality - https://www.aiavitality.com.au/vmp-au/
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 11Life insurance industry
Submission 32
Introduction
Introduction
AIA Australia welcomes this Inquiry as an opportunity roundtable has led to an industry wide taskforce which is
to examine areas where the industry can improve its bringing together the insurance and superannuation industry
products and service standards to better meet the needs of to develop industry-led solutions.
Australians. This will help Australians and it will help us, as
a company committed to ongoing improvement, in everything We believe that overall our industry is well regulated, with
we do. oversight from respected bodies including the Australian
Securities and Investments Commission (ASIC), and the
AIA Australia strives to provide value for our customers, Australian Prudential Regulatory Authority (APRA). The
our network of business partners, and the community. We industry has been closely examined by these bodies in
are proud of the vital financial and occupational support our the past year, and we are working co-operatively and
company provides to our customers every day. collaboratively to introduce new measures to enhance
protection, such as the industry-led Life Insurance Code of
With over 3.5 million people protected however, we know Practice, and the changes to financial adviser remuneration.
there are times when we don’t meet our customers’
expectations or our own, even though we strive to do so. AIA Australia welcomes greater focus on the life insurance
We take this very seriously and work hard to continually industry. We hope this increased public attention will
deliver improved service standards through regular training encourage more Australians to become actively engaged in
programs, internal and external audits, and ongoing reviews considering this important aspect of their financial security
of processes, procedures and policies. AIA Australia views as part of safeguarding their financial future, and that of
these as learning opportunities that we can build upon in their dependents and family members.
pursuit of our mission to be ‘the best in Life’ and to make a
positive difference in people’s lives. We are looking forward to working with the Parliamentary
Joint Committee to examine the role and importance of life
Recent public interest in the life insurance industry has insurance, its current structure and benefits to the nation,
prompted government to consider the structure and value and ways to improve value for Australians. We encourage
proposition of life insurance. This is something that we all players to openly examine their performance; to improve
do constantly. Consistent with our vision of being the pre- their products so they best meet community needs; and to
eminent life insurance provider in the Asia-Pacific region, deal with claims in a professional, sensitive and timely way.
we are always reassessing our products and services so
that they continue to meet the needs of individuals and We take the Inquiry seriously and we want to work
the community. with Members and Senators to produce a more robust,
transparent and capable industry that provides high value
The results of our efforts are evident. For example, in 2015 products that meet the needs of Australians.
we paid over $1 billion in claims - our group insurance
channel accepted more than 90% of claims, providing $850 Our submission seeks to address each element of the terms
million in financial assistance to over 10,000 claimants. of reference, outlining AIA Australia’s views and offering
In our retail channel, the Financial Ombudsman’s Service suggestions where appropriate.
comparative tables show we have the second lowest
levels of retail disputes.8 We continually strive to improve
our processes and culture to improve these results. Our
complaints co-ordinators examine each dispute that occurs,
as well as general trends, so we can learn from it and
consider improvements to policy wording, staff and adviser
training, education, culture or any other elements of the
business to prevent a similar dispute arising in the future.
Our commitment to continual improvement is further
demonstrated by our leadership role in the industry.
AIA Australia recently brought industry stakeholders
together in Canberra for an insurance within superannuation
roundtable, chaired by the former Member for Oxley, the Hon
Bernie Ripoll. We wanted to hear perspectives from regulators
like ASIC and APRA, Treasury, the Financial Services Council,
ASFA, AIST, IFF, ISA, CEOs of life insurers and trustees. This 8 FOS Comparative Tables – 2016 Final Report
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 12Life insurance industry
Submission 32
Introduction
Why is the life insurance Industry important AIA Australia believes caution should be exercised when
for Australia? considering reform to the life insurance industry that
may exacerbate underinsurance and subsequent costs to
Life insurance is an important risk management tool that
government. For example, our internal modelling shows that
helps individuals to provide for themselves and their families
changing from an opt-out to an opt-in system for insurance
in the event of death, illness, injury or disability. Life insurers
within superannuation could cause the percentage of insured
provide support for thousands of individuals and their
individuals to fall from ~90% (projected 17 million individuals
families each year at times of significant financial stress.
with coverage by 2030) to 18% (projected 3.5 million individuals
The 2016-17 Federal Budget highlighted that social security with coverage by 2030) – leaving a total of 13.5 million
and welfare remain the largest budget item, with the individuals without protection.
forward estimates predicting an increase in this area from
$154 billion in 2015-16 to over $186 billion in 2018-19.9 This
increase is in part due to an ageing population accessing
age, disability and carer payments, and residential and home
care. Life insurance can provide a private sector solution to
minimising these welfare costs, just as superannuation is a
private sector solution to the costs associated with an ageing
population, and private health insurance is a private sector
solution to managing health care costs.
For the year ending 20 June 2016, at least $8.2 billion in net
policy payments were made by life insurers.10 Overall, where
a decision has been made, 90% of claims are paid in the
first instance.11 This is evidence of the support provided to
individuals, their dependents, and the broader community. Even
with current levels of broad coverage, Rice Warner calculates
that underinsurance in life insurance costs the government
$2 billion annually.12 Individuals without cover, or who are
underinsured, are more likely to be reliant on social security
and welfare, increasing the cost to government.
9 Budget 2016-17 - Budget Paper 1, Statement 5: Expenses and Net Capital
Investment
10 ASIC Report 498 – 2016
11 ASIC Report 498 – 2016
12 “Underinsurance in Australia 2015” - http://ricewarner.com/australias-relentless-
underinsurance-gap/ (Last accessed 21/11/16)
AIA Australia Ltd Submission to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the Life Insurance Industry 13Life insurance industry
Submission 32
Introduction
Projection by number of members (Opt-out vs Opt-in)
Number of
members('000)
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Number of super members
Number of life insured under Opt-out (default design)
Number of life insured under Opt-in
Figure 1 AIA Australia internal modelling on the impact of a transition from opt-out to opt-in life insurance within the superannuation system
The unique relationship between life insurance Life insurance seeks to guard against the risk that an
and superannuation individual may be stopped, by an unfortunate event or
injury, from continuing to build a sufficient superannuation
AIA Australia supports the system of automatic default cover
balance to provide income in retirement as a substitute or
in superannuation, provided to members on an opt-out basis.
supplement to the Age Pension.
AIA Australia is supportive of the Group Insurance Statement
• TPD cover helps workers to self-fund their retirement,
of Intent of 7 October 2016 (Appendix 1), which recognises
by insuring against the risk that their accruement
that group insurance in superannuation is a successful
period is cut short. This helps to support the objective of
policy for Australia, and has resulted in better risk protection
superannuation by supplementing balances to a level that
for Australians.
is likely to be more sufficient.
This is because we believe financial protection during a
• Life cover is important in assisting families to adjust to
working life, and a comfortably funded retirement, are
having one less income stream, and helping to provide for
interwoven elements of a sound financial plan. Though
the dependents of the deceased.
each channel of life insurance has its own merits, the group
insurance system provides a safety net to millions who would • Income Protection cover often includes payment of the
have otherwise not chosen to, or been unable to, take out life Superannuation Guarantee contributions for the income
and disability insurance individually. This is reflected in our protection period, helping members continue to save
research that indicated almost one in two of those with life for retirement. Further, Income Protection may assist
insurance through superannuation believed they would not individuals to re-enter the workforce, for example by
be covered if it was not provided automatically.13 The benefits allowing them to undertake rehabilitation, and continue to
of group insurance are discussed further in section b. save for their retirement.
AIA Australia believes life insurance plays a vital role in
achieving the recently proposed objective of superannuation:
‘to provide income in retirement to substitute or supplement
the Age Pension’. For this reason, automatic default cover in
superannuation, provided to members on an opt-out basis
remains the correct policy setting.
13 AIA Australia – Life today study - 2016
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