Losses in superannuation linked life insurance products have spurred Australia’s largest life insurer, AMP, to wielded the axe, replacing two senior executives in response to $1.3 billion in losses and write-downs announced a month ago.

AMP chief executive Craig Mellor announced the departure of Pauline Blight-Johnston, former chief of insurance, superannuation and risk management and Rob Caprioli who was in charge of advice and banking.

Under a new management structure, they will be replaced by new bank chief Sally Bruce and Ms Blight-Johnston’s job has been split, with risk passing to Saskia Goedhart and insurance to Megan Beer. Ms Beer, AMP said in a statement, is responsible for “bringing single point accountability to stabilisation and management of the insurance business.”

Life insurance has been a running sore for AMP, which has one third of the market in Australia. At the end of October it announced an explosion in life insurance claims had forced to to reveal $1.3 billion of write-downs and losses.

AMP’s unhappy insurance picture.

It warned that profits would be $90 million lower in 2017 because it is likely that current high levels, much of which relates to superannuation products, would be maintained.

The above table tells the difficulty AMP has experienced in life insurance with losses mounting in income protection claims and group claims particularly. Group claims relate to life insurance products in superannuation as do many income protection claims.

In recent years AMP has paid about $1billion a year in life insurance claims for income protection and total and permanent disability. However during 2016 there has been a big leap in claims which Mr Meller has blamed on  increased publicity around the industry following the exposure of financial scandals such as that surrounding Comminsure.

“Two years ago you never read about life insurance. Now the industry is on its nose. The increase in claims has coincided with some of the issues in the industry,” Mr Meller said at the time.

Claims numbers have jumped. Photo: Getty

This publicity is raising awareness among super fund members of the existence of life policies in their funds. Some also claim that plaintiff lawyers seeking work are pushing up claim numbers as The New Daily has reported.

The rise jump in claim numbers is also said to be driven by the tightening of restrictions on workers compensation entitlements,which leave injured workers with no option but to try to claim through super.

AMP has taken out reinsurance through Munich Re to protect itself from the jump in claims it is experiencing. But that cover will cost it $25 million a year, reducing profits.

Disability cover deal lost

AMP has also lost a key life insurance contract providing death and disability cover to more than 200,000 members of the Mercer superannuation scheme.

Mercer dumped AMP in favour of AIA Australia after it lost out on a tender process, possibly an indication that it is raising its rates in response to recent losses. AIA Australia is backed by the largest independent publicly listed pan-Asian life insurance group, AIA Group.

Some workers have lost compensation rights. Photo: Getty

The five-year contract with AIA covers about $100 million a year in in-force premiums. AMP’s group life insurance business is expected to be reduced to between $350 million and $400 million a year in annual premiums and leave industry super fund VicSuper as AMP’s main wholesale client.

The leadership changes will come into effect from from January 1 next year. Mr Meller said the new structure would deliver a sharper focus on the performance of the core Australian businesses and clearer accountability for driving short and long-term growth.