According to Rice Warner Actuaries’ latest Direct Life Insurance Report, Australia’s direct life market has experienced growth over the past year that has seen it ‘come of age’.

The report reveals a dramatically changing landscape that features new, more sophisticated marketing, wider public acceptance, multi-channel distribution and an increasingly accepted online sales mode.

Richard Weatherhead, Director and Head of Life Insurance of Rice Warner Actuaries, believes the growing market is due to a shift in mindset from major insurers.

“The number of direct life insurance products sold in Australia has increased from 109 in 2008 to 164 today, an increase of 50 per cent in three years,” said Mr. Weatherhead.

“Major insurers have been devoting significant resources to direct distribution and direct life business over the past year, because they are viewing it as an integral part of most business planning rather than being a ‘blue sky’ venture.”

Today, direct life insurance constitutes around 17.8 per cent of overall risk insurance sales and 11.8 per cent of in-force business. Overall, from 2009 to 2010, sales were up 3.3 per cent to $403.1 million and in-force annual premiums increased by 9.7 per cent to $1,108.5 million as at 31^st December 2010.

While many factors can affect direct sales, the report has credited increasingly sophisticated target marketing and a focus on cross selling and up-selling to existing customers as being major drivers.

Despite the increase in sales and in-force premiums, there was a slight (0.2 per cent) decrease in mortgage and loan risk insurance. According to Mr. Weatherhead, this is a result of a general downturn in housing and a tightening of credit policies among home lenders.

“Mortgage and loan risk insurance is down, reflecting the slowdown in the housing market, the tightening of rules for loan approvals and rises in interest rates that made insurance less affordable in relation to borrowers’ overall budgets,” said Mr. Weatherhead.

Several emerging trends, outlined in the report, will continue to reshape the market over the next few years. In particular, the big marketing push through TV, which is leading to greater uptake and more widespread acceptance of the need for insurance, is closing the market to new players wanting to use that marketing method who may find it difficult to compete with substantial advertising spend of the well established competitors.
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“All distribution channels have seen significant growth in the past year, except direct mail and branch sales, the latter reflecting the downturn in the mortgage market,” said Mr. Weatherhead.
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“Particularly, we’ve seen increasing acceptance of the new online model. We know a high proportion of customers research products online before buying and over the past twelve months this has began to translate into real online sales, with $44 million of sales either online or as a result of a telephone call triggered by an online enquiry.”
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Mr. Weatherhead believes that the many challenges and changes facing the direct life insurance market over the next few years will lead to further evolution of the industry.
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“Life companies will be looking increasingly to customer engagement rather than sales as various segments of the market become saturated,” said Mr. Weatherhead.
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“Despite concerns arising from FoFA and some general views to the contrary, we consider that the move to direct represents a real opportunity for advisers to build new revenue streams via ‘no advice’ offers on the practice or dealer group website.”
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For more information on the report, click to view the Rice Warner Actuaries website

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