BT Super looks at insurance switch

Westpac’s BT Super is in negotiations to shift its group life insurance from in house to Asia’s AIA, sources say.

Last year, Westpac sold part of its financial planning division and closed the remainder Picture: David Geraghty

Westpac’s BT Super is in late-stage negotiations to shift its group life insurance from in house to Asia’s AIA, without going to a tender process, sources say.

The Australian understands AIA is negotiating the final contract terms and conditions with BT Super’s trustee, which will result in annual insurance premiums of about $200m moving away from Westpac.

The mooted shift has created frustration in the life insurance industry as BT Super did not go to tender. That may relate to complexities around the COVID-19 crisis or the capital intensity of the bank’s life insurance arm and a need to more quickly lessen the exposure.

A Westpac spokesman declined to comment, as did representatives of AIA.

Group life insurance reflects a product issued alongside superannuation where companies look to a super provider to house their employees, even though they ultimately have a choice of fund. BT Super serves many employers in Australia and also houses Westpac’s own staff superannuation.

On Tuesday, inclusive of a $1.43bn hit to cash profit — largely linked to an expected financial crimes penalty — Westpac said it was taking a $70m charge relating to changes to group life insurance arrangements.

“Westpac Life Insurance Services Limited (WLIS) and BT Super intend to end their existing relationship. As a result, WLIS will stop providing group life insurance to BT Super. Following this change, Westpac has written off associated deferred acquisition costs and will incur some transition costs,” the bank’s statement said.

“WLIS will continue to provide other selected forms of life and income protection insurance.”

Westpac estimated the Austrac penalty for 23 million alleged breaches of anti-money-laundering laws to be $900m. It indicated it would make further provisions relating to potential loan losses stemming from the pandemic, causing some analysts to question Westpac’s capital buffers.

AIA is a large player in Australia and acquired Commonwealth Bank’s life business for a revised lower price of $2.4bn.

The trustee’s decision to move the BT Super group insurance work to AIA also comes as Westpac continues to consider whether it should retain a presence in life insurance.

In September, The Australian revealed the bank had tapped JPMorgan to assess strategic options including a potential sale of its life insurance unit.

Any sale of Westpac’s life insurance operations would complete the bank’s retreat from the sector, following intense regulatory scrutiny and pressure on profits, partly due to policies lapsing and increased capital required to run the businesses.

The industry was thrown into the spotlight by the Hayne royal commission for poor practices, including outdated medical definitions and the small proportion of claims being paid. Three of the major banks have formed distribution alliances with the buyers of their life businesses so customers can continue to buy products.

Last year, Westpac sold part of its financial planning division and closed the remainder.

Westpac’s life insurance arm has also been entangled in two class actions; its 2019 annual report shows.

In 2017, an action was launched in the Federal Court by customers alleging they were sold life insurance by Westpac after receiving financial advice by planners that was not in their best interests. Last year, a class action was started against BT and Westpac’s life insurance unit relating to cash investment options. The bank is defending both court actions.