Tougher times are beginning to show their mark on this sector as its value drops by over $1 billion.
The Australian life insurance industry has been combating the struggles associated with the sluggish economic pace but has still managed to see its value drop by over $1 billion as the impact progresses.
Its challenges only grows as it faces difficulties in the claims of larger policy holders.
The largest life insurance companies in the Australian industry have reported that within the last year, the profit expectations were missed by a combined $220 million. These companies are blaming this failure to meet their goals on the a loss of customers that was considerably greater than anticipated. These customers are leaving as the condition of the economy continues to decline.
Life insurance claims costs are also proving to be greater than expected for these companies.
The claims costs have been especially high among the income protection products that many life insurance companies have been selling. These are policies that guarantee that if a customer is unable to work, then a portion of his or her salary will be paid for a certain period of time.
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Middle aged white collar workers have been experiencing higher than normal levels of stress and depression related claims that have lead to income protection claims for many people who have high salaries to be covered.
The APRA regulator explained that the income protection products had been only slightly profitable for the majority of life insurance companies in the year ending on March 31. The year before that, they had been generating losses.
In February 2013, APM, the largest Australian life insurance company when measured by in-force premiums, reduced over $500 million from its operations’ estimated value due to altered assumptions regarding the cost of claims and its loss of customers. This came after a previous reduction of $53 million in its forecasted profits from its life policy operations within the last half of 2012. The entire industry in Australia is experiencing universally high struggles with poor claims experience and lapse rates, which have reached their highest point in a decade.