Blurring lines: how group and retail risk offers continue to converge

A dynamic feature of the broader financial services industry is the degree to which competition is opening new frontiers for product innovation and delivery mechanisms. Pricing is also a strong lead indicator of underlying competitive pressures.

A good example is risk insurance, a product segment that has traditionally provided a healthy competitive battleground between the so-called group (superannuation) and retail segments.

As a proxy for pricing convergence within the broader financial services market, risk is a reasonable case in point.

That is because recent evidence shows us there is a clear narrowing between the group (superannuation) segment and traditional retail, particularly in terms of competitive pricing.

This feature of Australia’s risk market was explained in more detail in a recent opinion piece published by Professional Planner magazine.

A combination of forces including changing population demographics and underwriting pressures appear to be driving these new fronts in the battle for market share.

Where is price convergence happening? Recent Rice Warner analysis shows Australia’s group life segment has begun increasing premium levels.

We compared the average premiums for Death and TPD cover for the 10 largest industry and public sector funds against the average premiums for the retail, adviser sold products offered by 15 insurers.

What it shows, is that although superannuation funds remain a lower cost proposition to consumers on average, the margin between the two (retail and group) segments, has narrowed substantially, and continues to compress.

Price differentials have reduced in the last 8 months alone. During this time super funds increased pricing by 14 per cent on average while retail prices increased by just one per cent, on average.

A combination of forces including changing population demographics and underwriting pressures appear to lie at the base of this new pricing development.

The key takeout? Should the group segment continue increasing its premiums faster than retail, it diminishes the ‘higher cost’ argument which has prevented more retail direct sales in the past.

The new battle lines appear to have been drawn.

– Thierry Bareau, Head of Life Insurance