The number of life insurance products sold
directly to consumers without the aid of a financial adviser has
increased from 109 in 2008 to 203 in 2012 – an increase of 86%,
according to a to report published by Rice Warner
Actuaries.
Direct life business in Australia constituted
11.9% of the overall in-force risk insurance business as at
31 December 2011. This compares with an 11.8% market share as at 31
December 2010, noted the report.
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Within the direct life segment, the study said
in-force premiums for funeral insurance rose 15.4% year-on-year
(YoY) in 2011. In-force premiums for term and income protection and
accident insurance premiums increased by 17.4% YoY in
2011.
Richard Weatherhead, director and head of life
Insurance of Rice Warner, said market growth was due to a
greater awareness among consumers of the risks of death and
disability across Australia.
Product marketers are also “becoming smarter”
at understanding individual client needs and targeting offers
accordingly, said Weatherhead.
Weatherhead said: “The growth of the funeral
insurance segment was a surprise given that this segment has become
saturated over the past few years. However, it reflects new
entrants to the market and the scale of the major incumbents.
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By GlobalData“Term, income protection and accident
insurance business has grown more rapidly than traditional adviser
sold and superannuation fund risk insurance in 2011, reflecting not
only the efforts of product marketers but also the increasing
acceptance of direct distribution by consumers”.
Future growth
With the direct life business representing 25%
of Life insurance sales in 2010-2011, more than 40% of new
insurance business in Australia is expected to be direct life
business by 2021, according to management consultancy Oliver
Wyman.
Brad Clarke, head of insurance strategy for
Oliver Wyman in Sydney said the reality is that life insurance
remains “largely sold”, rather than bought, and successful players
are using sophisticated marketing techniques to reach their
clients,
Clarke said: “Digital adoption and technology
advances as well as scaled and remote forms have assisted and will
continue to present opportunities. We expect many players however
to continue to struggle to differentiate between what sounds like a
great idea and one that will result in a sustainable business.”
Clarke added that for insurers that can stay
ahead of the curve and competition, drawing successful lessons from
global players, the direct business will reach “well beyond the
fraction” that it is today.
Although direct life insurance has grown
rapidly in Australia, it is clear that achieving scale is a key
requirement for the business to be sustainable.
For example, Rice Warner Actuaries highlighted
that since its previous report in 2011, 73 new direct insurance
products have been launched and 34 have been closed, demonstrating
the high turnover and short lifecycle of some products.
This indicates that many direct life insurance
ventures in Australia have failed to deliver the anticipated
business volumes and it is proving difficult to achieve the
scale necessary to ensure long term profitability..
The report also noted that most working
Australians have a base level of death and permanent disability
insurance through their superannuation fund and it is difficult to
explain to potential customers that such cover is often inadequate
to meet individual needs.
