Clients take cover as risk market picks up

The life insurance market has passed through its dark days and things are looking a lot brighter.

Standard & Poor’s (S&P) recently undertook a life insurance industry review, which showed that the Australian market was enjoying an improving operating environment in 2004, following a more turbulent period characterised by difficult investment markets and a slowdown in life premiums.

S&P managing director, financial services, Ian Thompson says: “Over the last 12 months we have had a negative outlook on the market, but we’re now moving to a stable outlook, with better earnings and higher business volumes.”

Dexx&r figures on the life risk market for the 12 months to December 2003 show that while term life business has remained fairly static from 2002 results, disability business has picked up strongly.

Total in-force annual premiums for term life were up 10.92 per cent for 2003, compared with 11.79 per cent for 2002, while total new annual premiums where slightly down at 7.83 per cent for 2003, compared with 10.83 per cent for 2002. On the disability front, total in-force premiums are up 8.55 per cent for 2003 (6.18 per cent in 2002), and total new premiums up 8.37 per cent — a recovery of 35.59 per cent between 2002 and 2003.

The strongest performer in terms of total new annual term life premiums for this period was Westpac/BT, which Asteron national risk consultant Kerry Anderson says is indicative of the banks’ efforts to utilise both their tied distribution structures and their massive client bases.

“The banks are really taking advantage of the fact that they have people in debt, and are referring them through,” Anderson says.

“With the rising amount of debt in Australian households, increased levels of spending, and more people working on contract or who are self-employed, there are a lot of opportunities for the income protection market, as well as term and total and permanent disability (TPD) insurance.”

Thompson agrees that maximising client retention and ‘harvesting’ is one of the biggest challenges facing the bank-aligned life insurers.

“By contrast, for the life companies who are not aligned, the challenge is how to grow their client base and how to insulate them from the banks, which will have an existing relationship with those clients. You also have to make sure that your product is attractive so that you can still access that distribution base — as the tap can be turned off very quickly,” Thompson says.

While life risk business is steadily growing, the problem of underinsurance in Australia is still a significant one.

MLC chief executive, wealth protection, Lisa Gray says that research commissioned by MLC in 2003 for the two year period prior showed a grim picture. The number of Australians with life insurance had dropped from 23 per cent to 19 per cent, income protection dropped from 10 per cent to 7 per cent, and critical illness has stayed flat at only 2 per cent of the population.

“It’s incredibly low and the trend is that it is declining. So that’s one key concern. If you then say that people assume they are covered through their superannuation, the average cover through a fund is $100,000 to $150,000, and the rule of thumb is that the average person will need at least $500,000 to $600,000. So the more dangerous thing is that people think they have adequate cover, but they do not,” Gray says.

However, if you’re a planner, these figures could look like a goldmine. Both Asteron and MLC have put in place programs to further educate advisers about including risk in their planning process.

MLC has stressed the importance of building risk insurance into its holistic advice model — something it has put a lot of time and resources into promoting with its advisers. But also as a life insurance product manufacturer, it has also recognised some of the fear and complexity surrounding risk, and looked at ways of simplifying and integrating the process of writing life insurance into its banking and investment structures.

Meanwhile, Asteron is also trying to provide education and practical strategies for advisers, as well as realigning its product range earlier this year to fit more easily with customer segments.

“We really wanted to provide more flexibility and choice for advisers. We have looked at our underwriting practices to adopt a more strategic approach, create separate non-medical limits for our term life and trauma cover, and have streamlined the process for term life and income protection, which in most cases removes the need for a medical examination,” Anderson says.

Asteron has also held workshops to clarify the different definitions of disability in the market.

Helping advisers to capitalise on ‘gaps’ within their existing client bases is a major part of many of the life insurers’ growth plans — and there are plenty of gaps that need to be filled.

“Business expense insurance is underdone. It is poorly understood and complicated from an underwriting perspective. But it could be combined in a package with income protection insurance for self-employed people,” Anderson says.

She also says given the prevalence of heart attack, cancer and stroke in the Australian population, there is a great need for trauma insurance.

Aside from these product-specific opportunities, the outlook for the market over the next 12 months is looking good, according to Thompson.

“The earnings outlook is sound, supported by improvements in investment income, and funds management fees will also improve with the market, as asset values and sales volumes increase.”