The biggest emerging risk in life insurance is that it has no future. In 2019, the Australian Prudential Regulation Authority called for urgent action regarding the sustainability of individual disability income insurance, citing a collective loss of A$2.5 billion to the industry over the past five years.

The following year, the Reserve Bank of New Zealand reported that ‘some life insurers have low solvency margins over the regulatory minimum, which raises questions about their ability to comfortably meet the minimum requirements in the event of an adverse shock or a major loss event’.

In the worst-case scenario, reinsurers leave, insurers end up losing so much money that the system goes into default and consumers are left without cover. So, what are the forces putting the sector under threat?

Ageing populations

Mark Judah, APAC insurance lead and partner at Bain & Company, believes that improving living standards across the Asia Pacific and increasing access to medical care are spurring demand for health insurance. ‘In many areas, people are living longer and the population is ageing, fuelling a need for life insurance and related products to help protect family living standards for the next generation.’

A potential increase in business may sound like a benefit but, in fact, it comes with a serious risk, according to one chief medical officer (CMO) at a major reinsurer, who spoke to the Journal on the condition of anonymity.

‘In Australia and New Zealand, life policies often terminate automatically at age 65 or 70, so the ageing population has limited impact,’ the CMO explains. ‘However, in many South-East Asian countries, life policies tend to be “whole of life”, so a longer life means a more costly claim.’

Medical advancements

In recent years, advances in screening, diagnosis and treatment have improved the outcomes of medical conditions such as heart disease and cancer. On the face of it, this seems like another positive, but rapid advancements can render underwriting practices out of date.

‘I’m not sure the industry is keeping up with these changes and their impact on definitions and cover,’ says the CMO. ‘We’re also seeing an increase in disability claims resulting from mental illness, and dementia is another major emerging risk. At the moment, there are no impartial tests for these conditions. This is a huge risk for insurers, because they must trust doctors to make the right clinical diagnosis decisions in what are often very grey areas.’

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