The coronavirus pandemic has wiped out $1.4 billion from the books of life insurers and triggered a spike in claims, according to new research.
KPMG's 2020 Life insurance insights reveals close to half of the firms it analysed are making a loss.
Retail disability income received the biggest blow, losing $1.1 billion in FY20, while group lump sum made a loss of $353 million.
Large losses on retail disability income products reflect worsening claims experience, the report said, noting the ongoing challenges insurers face over the sustainability of this product.
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Group disability income was also in the red at $249 million. Retail lump sums was the only product to make a profit of $422 million, but this was down by 43% year on year.
KPMG insurance sector lead David Kells said the industry's profits have either fallen or losses worsened on almost every metric.
"This was always likely to be a tough 12 months for the life industry, starting from a low base in 2018-19, and with the full effect of regulatory changes kicking in this year," he said.
Life insurers also saw a 4.3% rise in the cost of claims to $15.3 billion (up from 1% and 4.1% in 2018 and 2019 respectively). Accident and mental illness claims appear to be two key drivers of increased claims, but KPMG predicts claims could be exacerbated by COVID-19.
Kells said critical work in addressing future product design must be accompanied by a coherent strategy to tackle issues such as: the pricing of in-force books, effective claims and expense management, and targeted distribution strategies.
One positive finding is that the sector continues to be well capitalised, with this year's capital-coverage ratio remaining consistent with the prior year at 1.8.
Overall, Kells said the life insurance industry now faces additional significant challenges in responding to the impacts of the health crisis, while addressing serious and ongoing profitability issues.
"Progress towards a more sustainable position requires action on multiple fronts," Kells said.