The state of play

The Australian life insurance industry is huge, with as much as $11,000,000,000 of premiums a year[1] , growing, perhaps as much as 10% a year. Rising incomes and rising populations, plus a chronic under-insurance problem, suggest this premium growth will continue indefinitely.

The Australian life insurance industry is not profitable. High administrative costs including high executive salaries, growing claims fuelled partly by an increasingly aware and predatory legal profession, high commissions, high lapse rates and concerns about growing longevity risks mean profits are low across the board.

The consumer, the man on the street, your average client, is largely indifferent to life insurance and has a low understanding of how life insurance products work. Few clients are prepared to pay for risk insurance advice. The fee for service model is not popular with clients other than high net worth clients who are conditioned to pay for advice and understand the value of advice.  Most agree that the commission system, with all its flaws, is still a reasonably efficient method of rewarding advisers for their time and efforts working with clients.

Most Australians are underinsured, and a 2008 survey by the Australian Institute of Trustees (AIST) suggests that about half industry fund members are underinsured by at least $100,000. This is presumably a lot more now. Some say less than one in twenty Australians are fully insured, despite most employees now having some “universal life cover” through their industry super fund membership.

The risk insurance products offered by the different life insurers are close substitutes and have little in the way of differentiation. In the retail distribution mode commissions are high and comparable between insurers. The distribution mode selected by the insurer has the strongest influence on market success[2].

The retail distribution mode has historically been the most successful in terms of volume. But this is changing as bank distribution and group (i.e. industry super) distributions grow. Internet distribution is not significant but is expected to become so in the future.

The retail distribution mode is driven by commissions and similar sales incentives.

The largest ten insurers and their approximate market share are tabulated here:

Insurer Market share
AMP 16%
NAB 14%
Comminsure 14%
TAL Group 13%
OnePath 11%
AIA 11%
Suncorp 6%
Westpac 5%
Zurich 3%
Other 10%

Premiums have been increasing in recent years.

[1]Source: Overview of the Australian Life Insurance and Wealth Management Sector, Clive Levinthal, Actuaries Institute Summit May 2013

[2]Levinthal op cit

The Dover Group