Speaking at the Financial Services Council annual conference in Cairns, APRA deputy chair Ian Laughlin said life insurance is a “frustrating issue for us”.
“In many ways, the industry hasn't managed itself as well as it could have,” he said.
Mr Laughlin acknowledged that the industry has faced external challenges such as increasing mental health claims, and added that the sector is now starting to address the sustainability issues.
“But a lot of the solutions that are being put in place have been put in place before,” he said. “So one of the questions we need to ask is: What's different this time? Why is the industry going to successfully address the problems now, and then avoid the problems in the future?”
Mr Laughlin compared the industry to a child who puts their hand under a hot water tap.
“[The child] knows immediately that that's not a good thing to do, and they won't do it again because they'll get burnt,” he said. “One of the problems with the life insurance industry is that the actions being taken now take a long time to filter through the system,” he said.
“So the quality of products, the quality of underwriting, the quality of claims management all take a while to filter through the system,” said Mr Laughlin.
“I would venture to say that there are quite a few people in this room – and this would include me - who have been rewarded for results or for products or for service to advisers that in fact had not been in the interests of the industry,” he said.
There is a “disconnect” in the industry between what happens at one point in time and what emerges years later, said Mr Laughlin.
“I think the industry is getting its head around that, and is trying to engage and have a sustainable future and not find itself with these problems again five to 10 years in the future,” he said.
