Product innovation helps deliver strong growth for Australia’s direct life insurers

Alastair Adamson

Alastair Adamson

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

In the 12 months to December 2013, direct life insurance sales accounted for $558.1 million, with in-force annual premiums worth $1,459.3 million for the same period.

This represents significant growth over the 2013 year, as sales increased by 8.2%, and in-force premiums rose by 8.8%, according to Rice Warner’s latest Direct Life Insurance Market Report.

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 end December 2012.

“During 2013 we saw a great deal of activity amongst direct insurers, increasing the range of products and features, “ said Alastair Adamson, Head of Life Insurance Market Insights for Rice Warner.

Mr Adamson said while product development was a key industry feature, so too was the rationalisation of non-performing offers.

“Australian direct customers have access to a diverse number of risk insurance products which has helped to stimulate growth within the sector. However, direct distribution provides a challenging environment with shifting demographics, and subsequently each year we see a number of product closures,” he said.

“Product manufacturers move on quickly should products not meet success criteria, going on to build other products with more successful outcomes.

“The direct market is constantly willing to explore new domains and develop new sales partners, which reflects a commitment to innovation that is unique within the insurance market.”

Key Product Segments & Pricing

Results for the three main product segments within Direct Insurance included:

  • Credit-related insurance, covering mortgages, loans and credit card debt (in-force premiums up 10.6%)
  • Funeral insurance (in-force premiums up 11.9%)
  • Term, income protection and accident insurance (in-force premiums up 6.2%).

“Credit card debt increased by only 0.7%, whilst related risk insurance grew by 5.3% in in-force premium, delivering a strong result for this segment,” Mr Adamson said.

In terms of competitive pricing, direct insurance has maintained strong margins relative to the group and retail sectors, each of which have increased premiums over recent years.

Despite several high profile increases in group (and some lower key increases in retail), 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.

“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.”

Mr Adamson said a tightening of definitions within the group (superannuation) 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.

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