Convergence the key to life insurance market growth

Rice Warner today released its Risk Insurance Market Projections Report 2012.

The report shows a dynamic market with growth of 5.0% per annum after inflation over the next 15 years.

Richard Weatherhead, a Principal at Rice Warner, said this growth is despite significant headwinds in the short term, including seismic shifts in the superannuation market, increasing claim rates and regulatory capital requirements and the challenge of moving to a customer centric engagement model.

Prices are expected to rise for the first time in years, particularly for wholesale risk insurance through industry and public sector superannuation funds and retail risk income protection.

“Over the past few years, there has been a convergence of product designs between the three key market segments: financial advisers, superannuation funds and direct distribution”, he said.  “This trend will continue with advised business being generated through traditional financial advisers, superannuation fund based advisers and telephone based advisers.

Scaled advice is particularly suited to life insurance and self-service.  Consequently, online insurance advice will evolve over time.”

Pricing structures will also start to converge with price increases within industry funds and other employer based superannuation risk insurance arrangements and, in the retail sector, financial advisers moving to identify the cost of advice separately from the price of risk insurance cover.

Recent growth in life insurance levels means that it will be vital for insurance providers to understand individual customer needs and to target insurance offers accordingly.  Improving customer analytics and technology support will transform traditional customer engagement models and provide the foundations for more efficient and targeted direct-to-customer life insurance distribution.

Key points:

• Risk insurance is now a $11.3 billion market that will more than double (in today’s dollars) in the next 15 years.
• However, the growth rate after inflation of 5.0% per annum will be much more subdued that the 9.8% per annum achieved over the last 15 years.
• Public sector superannuation and employer master trust insurance will grow more slowly than other segments.  For employer master trusts this reflects the shift to personal superannuation as a direct consequence of changing superannuation legislation.  Overall, the quality of the advice and superior customer service will be the keys to success.
• Risk insurance sold through personal superannuation will grow 5.5% per annum in real terms, faster than in previous research and reflecting the growth of bank-developed ‘low-cost’ superannuation products to compete directly with not-for-profit funds.
• The corporate stand-alone risk insurance market will grow at 5.8% per annum in real terms, driven by employers’ enthusiasm to provide cover for employees and, in some cases, arranging this outside the traditional superannuation environment, providing greater flexibility of product design and avoiding the complexity of managing concessional contribution limits.
• By 30 June 2027, 53% of the market (in terms of amount of cover) will be retail business and 47% wholesale business.  This compares with 44% retail and 56% wholesale at 30 June 2012.