From go to whoa: why market entry and exit speed is driving direct life insurance growth

Innovative product development coupled with speed to rationalise non-performing insurance offers has helped underpin strong growth in Australia’s direct life risk segment.

 
In 2013 we observed a spike of activity amongst direct insurers, increasing their range of products and features. And while product development was a key industry feature, so too was the rationalisation of non-performing offers.

 
Various product manufacturers moved on quickly when products failed to meet targets. These actions prompted new product and partnership development, as manufacturers continued seeking more successful outcomes.

 
Was all this activity a net positive? We believe so, as it reflects the willingness of the direct industry to explore fresh domains, forge new sales partners, and commit to a level of innovation that is not seen to the same extent in adviser driven and group (superannuation) insurance markets.

 
By comparison the retail intermediated and group market distribution models are relatively static.

 
Another interesting angle on the 2013 direct market was a quick relook at comparative pricing between direct, retail and group insurances.

 
There were several high profile increases in group (and some lower key increases in retail). We expected to see the gap between the premiums reduce, which they did, but relatively direct remains significantly more expensive compared to group prices.

 
This premium pricing is explained by relatively higher acquisition costs and higher lapse rates for direct products.

 
However, clearly the group insurance market is a key competitor to direct, and direct insurers should recognise that a potentially strong source of future sales would derive from group customers.

 
A tightening of definitions within the group segment may provide space for direct insurers to offer TPD and income protection features and definitions that cannot be offered in group policies, thereby gaining a competitive edge over group products despite a clear price discrepancy.

 
And what about the underlying numbers? In the 12 months to the end of December 2013, direct life insurance sales accounted for $558.1 million, with in-force annual premiums worth $1.4593 billion for the same period.

 
This represents significant growth over the 2012 year, as sales increased by 8.1%, and in-force premiums rose by 8.8%.

 
In comparative terms, market share for direct life insurance remained reasonably steady at 11.4% of Australia’s overall risk insurance market, compared with 11.6% at the end of December 2012.

– Alastair Adamson, Consultant.