Unprecedented challenges in the life insurance industry are exacerbating profitably and forcing some players out of the market, the latest PwC report shows.
Customer demographics, ongoing trust issues, heightened regulation, foreign entrants, technology and competition are forcing small players to consolidate or exit, according to the Future of life insurance in Australia - profitable growth in challenging times report.
For those who remain, establishing and retaining customers' trust will be critical to their success as a majority (58%) of Australians PwC surveyed said their life insurer will not be there for them in their time of need.
The 8% growth the retail segment experienced in the last five years will taper off, driven by "declining adviser numbers, an increased focus on sales compliance and overall market saturation," the report says.
During that period, profitability declined due to an increase in the number of claims, while revenue and profitability growth prospects in the broader life insurance industry are lower compared to other sectors in financial services, it says.
Consolidation amongst smaller players, simplified product portfolios, analytically enhanced underwriting, aggressive pricing and token investments into lower cost channels are likely to manifest as short-term responses to the economic challenge but will not be "sustainable."
The report also warns of the foreign players entering the Australian market, most notably Japanese insurers that are "having a significant impact."
"These entrants have access to large capital pools, are used to operating in a low-yield environment, and possess extensive claims management expertise. This, combined with their willingness to focus on longer term gains, suggests that the market dynamic could be shifting towards a greater emphasis on competitive pricing and increased customer churn," it notes.