Challenges for Life Insurers and Friendly Societies in 2022


Three months into 2022 and the economic environment and financial markets have plunged into greater uncertainty and volatility with Russia’s invasion of Ukraine adding to inflationary and supply pressures in addition to the human tragedy.   This comes after COVID-19 Omicron’s further disruption to supply chains and worker shortages.  But on the bright side, unemployment in Australia is down to 4.0%, its joint lowest level since 1974, and record high female participation, all leading to strong expectations that cash interest rates in Australia will rise soon, and that globally short and longer duration rates will continue to rise for the next couple of years.  In the long run a higher fixed interest return base is good for insurers and friendly societies’ investment returns taking some pressure off the gap between returns on capital guaranteed business and management fees.

Product sustainability

The expected rise in interest rates is too little too late for many friendly society capital guaranteed legacy products.  The industry is well aware that members’ best interests must drive product assessment and improvement.  Many of their members are being offered sustainable conservatively invested investment linked alternatives with lower management fees and higher expected returns.  The challenge is to convince a new generation of members to buy in a competitive market where independent advisor numbers are falling and selling direct to consumer requires significant investment in digital capabilities.

In risk insurance, the industry has worked hard on implementing APRA’s directions on making Individual Disability Income Insurance (IDII) sustainable.  APRA’s latest statistics show an industry profit turnaround of $1.3bn, which takes some pressure off capital needs.   Going forward a key challenge is data capture and analysis to understand the insured experience and behaviour with a view to improving prevention and claims recovery to keep claims costs down and premiums affordable.

Mortality and morbidity – COVID-19 and beyond

In 2020 and 2021 Australia’s management of COVID-19 led to lower mortality due to the virtual elimination of flu deaths and reductions in other respiratory diseases – a global feat to be proud of.   However, recently released research from the Actuaries Institute shows Omicron variant deaths in January and February have wiped out this advantage.

The effect of COVID-19 on morbidity levels within IDII, Group DII and lump sum covers like Trauma/Crisis Cover will play out over coming years.  A major area of interest is the continuing growth of awareness and community acceptance of mental health issues and the extent to which this flows through to more claims and / or changed duration from earlier detection and improved treatment.


Preparation for implementation of the new accounting standard – AASB 17 Insurance contracts – is the currently single biggest time critical project for most life companies.  Reporting for an insurer’s financial year must start for the financial year starting after 1 January 2023, with comparables for the prior financial year.  In parallel since December, insurers are working through APRA’s proposed updates to the capital and reporting frameworks for insurance in response to the introduction AASB 17.   Late starters have the advantage of more clarity on interpretation of the standard, but less time to get the job done.  We are seeing a resource crunch across the globe as insurers work hard to meet the deadline.