Technology, education, analytics to drive growth in wholesale insurance market

From

A new report from independent financial services consultancy Rice Warner predicts strong growth for the wholesale insurance market over the next 15 years.

According to Richard Weatherhead, Director and Head of Life Insurance at Rice Warner, this growth will emanate from individual member increases in cover rather than increases to default cover levels.

“The growth we’re seeing is the result of a continued commitment by funds to engage and educate members, in particular through the increasing use of improved member analytics that help in tailoring insurance solutions to the needs of individual members,” said Mr Weatherhead.

“Couple this improved ability to assess member needs with other factors and it is clear to see why there is a growth story at play. Increased availability of cover through online, telephone and other technology-based needs assessment is one factor.  Another is regulatory changes in the advice market, which is likely to lead advisers to recommend wholesale insurance arrangements more frequently in the future,” he explained.

The report predicts that the $3.2 billion wholesale market will grow at a rate of 11.1% per annum over the next 15 years, broadly in line with growth of 12.4% per annum over the past 15 years.

Mr Weatherhead said that growth will be driven by the still stubbornly low levels of cover for many Australians relative to their needs and the highly competitive pricing of wholesale insurance.  For example, the average cost of $100,000 worth of death and total and permanent disability insurance is $126 a year or $2.42 a week.

As well as forecasted growth for the market, the report identifies several challenges.

The highly competitive nature of the Australian wholesale insurance market has resulted in gradually reducing profit margins for insurers, making the sustainability of insurance prices an increasing concern for both insurers and trustees.

“The recent deterioration in claims experience, particularly for death and income protection business, suggests that there will be upward pressure on prices in the future, running counter to the more recent experience in which prices have reduced by around 5% per annum. We also believe that the lower margin environment will lead to further concentration of wholesale insurance providers, leaving a smaller number of insurers who will have the scale, resources and focus to ride through the insurance cycle,” said Mr Weatherhead.

“Some eight insurers account for 93% of revenue, and of those, the top four wholesale insurers by annual premium income increased their combined market share from 56.9% last year to 66.4% this year.”

The report concluded that technology developments and service levels will be critical for insurers to gain competitive advantage in an increasingly concentrated market.

“A number of major superannuation funds have reviewed and updated their insurance programs over the last year. Key areas of focus in selecting an insurance partner, apart from price, have been service levels, making it easier for members to get cover and improving underpinning technology and reporting processes.

“Accordingly, automated underwriting is becoming a prerequisite for insurers to be considered, at least for larger funds. There is also increasing demand for online claims lodgement and assessment and case workflow reporting,” said Mr Weatherhead.

Regulatory changes outlined in Stronger Super also threaten more complexity within the wholesale insurance market. 

“Whilst we support auto-consolidation as proposed in Stronger Super, it does present significant challenges in determining whether members whose super is automatically consolidated should retain all their exiting cover, only the default cover available in the new fund or some level of cover in between,” said Mr Weatherhead.

You must be logged in to post or view comments.