The Gap Between Group And Retail Risk Offers Continues To Narrow

Recent market movements have continued a trend first raised by Rice Warner analysis revealing a narrowing between pricing levels of Australia’s retail and group life insurance sectors.

First published just a few months ago Rice Warner research showed that the price differentials between the retail and group segment had significantly reduced during the prior eight months to April 2014.

During this time, the premiums for Death and TPD for the 10 largest industry and public sector funds had increased by 14 per cent on average, while retail prices increased by an average of just one per cent.

As we continue to monitor the trend, Rice Warner has detected since April that two major Australian superannuation funds have announced premium increases.

Their pricing increases have boosted the average premiums for the 10 largest funds by more than 30 per cent in the 12 months to 1 July 2014.

The increase is higher for some occupations, with the average premium for the ‘light blue’ segment increasing by more than 40 per cent. During the same period the average premiums for the retail, adviser-sold products offered by 15 insurers have increased by only one per cent.

Rice Warner calculations show that while the price difference for $250,000 Death and TPD sum insured (industry average) was around 50 per cent in favour of the industry funds 12 months ago, the difference is now closer to 33 per cent for white collar occupation and ‘only’ nine per cent for light blue occupation.

Further, because retail products apply a large sum insured discount of around 30 per cent on average for a $1 million Death and TPD product, the difference in pricing reduces again with the average retail price remaining cheaper than the average superannuation fund pricing at younger age, particularly for females (age 30 and 40).

This illustrates that with the convergence in pricing, some funds could be selected against, sparking a re-weighting of the insured customer. For example the younger, healthy lives (for which underwriting is not an issue) may shift to retail products that are potentially cheaper. ‘Less healthy’ members may stay in the fund, representing a higher probability of claims for the funds.

Additionally, as retail products mostly incorporate adviser commissions embedded in their price, those advisers operating on a fee-for-service basis would rebate commission to the client through a premium reduction of between 25 per cent and 30 per cent, delivering a more appealing offer.

The price convergence between retail and group segments shows the need for issuers to remain vigilant to the shifting dynamics of their competitive marketplace and to be alert for the impact of those market pressures and new opportunities.

– Thierry Bareau, Head of Life Insurance