Double digit growth drives Australia’s $14 billion risk insurance sector

Will strong growth continue? Australia’s risk insurance sector has yielded the recent benefit of two consecutive years of strong, double digit growth, and a combined spike in premium rates. With a market now nudging $14 billion (as measured by annual premium income) all eyes are on the long-term future for the sector. Rice Warner’s annual Risk Insurance Market Projections Report forecasts continuing – but slowing – growth over the next 15 years.

The big ticket number from Rice Warner’s annual Risk Insurance Market Projections Report is the estimated figure of $41.278 billion. That is the projected dollar value for Australia’s total risk insurance industry (premium income per annum) over the 15 years to June 30, 2029.

Today, the market is sitting at $13,834 billion, and a reasonable dent has been made in the nation’s well-publicised underinsurance problem. Yet, a more than doubling of the total market value over the next 15 years requires a growth rate of 7.6 per cent per annum. Plausible? We believe so.

Against recent actual growth figures of 10.1 per cent and 11.2 per cent respectively over the 2013 and 2014 financial years, our longer term estimates may look conservative. But the 15 year projections also price in a gradual slowing of growth, along with a projected temporary catch-up in premium rates over the next two years.

The Risk Insurance Market Projections Report growth environment is projected to see:

• 9.8 per cent per annum over the next five years
• 8.1 per cent per annum over the next 10 years
• 7.6 per cent per annum over the next 15 years

However, the exception to our estimates is the Direct distribution segment (insurances sold via the web, outbound telephone calls, mail, shopfronts and other direct channels) which is expected to experience slightly stronger growth of 8.7 per cent per annum.

Further key findings of our Risk Insurance Market Projections Report include:

• By 2029, 75 per cent of the market will be retail business.
• By 2029, 63 per cent of the market will be advised, 12 per cent direct, and the balance held by employer based superannuation or other employer arrangement.
• By 2029, the majority (63 per cent) of total business will be held outside superannuation.

Jenni Baxter, Senior Consultant