Wholesale Insurance Market at cross-roads
- On 12/11/2012
A new report from independent financial services consultancy Rice Warner shows the contrasting fortunes of the wholesale insurance market, with continued growth and extremely competitive prices for consumers on the one hand and the challenges of declining margins, higher capital requirements and a raft of legislative and regulatory changes on the other.
According to Richard Weatherhead, Head of Life Insurance at Rice Warner, the traditional insurance cycle is turning, with a firming of prices in the market as insurers adjust to a world of more volatile and often higher claim rates going forward and they become more selective in the business they write.
“Median prices for death cover have reduced by 4.7% over the past two years. In the context of the cost pressures facing insurers such reductions, year after year, were never going to be sustainable and we are now seeing the emergence of more rational market pricing” said Mr Weatherhead.
The report predicts that the $3.6 billion wholesale market will grow at a rate of 6% per annum in real terms over the next 15 years, less that the real growth of 9.3% per annum over the past 15 years but still very much a growth market.
Mr Weatherhead said that growth will be driven by the low levels of cover for many Australians relative to their needs and the increasingly sophisticated customer communication and engagement strategies being adopted by funds.
As well as forecasted growth for the market, the report identifies several challenges. These include:
- the government’s Stronger Super changes and, in particular, the introduction of MySuper
- the continuing erosion of the tax benefits of superannuation which may lead to a shift away from risk insurance inside superannuation
- the quality of insurance data which often prevents superannuation fund trustees (and their insurers) from gaining full visibility of insurance experience and reacting to emerging trends
- the ongoing demand for improved service, including a shift towards full online insurance services for members and employees and the breaking down of the traditional boundaries between trustees, insurers and administrators to deliver a better overall customer service proposition.
The report provides a comprehensive analysis of the wholesale risk insurance market, including trends in product design, price comparisons between funds and with other segments of the risk insurance market. It is based on the annual Rice Warner survey of superannuation funds’ insurance products and services, showing coverage levels, insurance services provided and the financial advice services provided in relation to risk insurance.
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