Life insurance ripe for disruption

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.

Read more: AustraliaAustraliansFuture of
Editor's Choice
New-York based financial firm Goldman Sachs is planning to launch an ETF which will invest in high-yield corporate debt, according to documents filed with the US Securities and Exchange Commission.
ALEX BURKE  |   12:59PM
Two Contango MicroCap (CTN) directors were removed following an extraordinary general meeting and a third resigned prior to resolutions being passed.
BT Financial Group confirmed its chief investment officer left the company "effective immediately."
Franklin Templeton Investments has launched its global online training portal for advisers in the Australian market.
Brought to you by
1 MAR 2017
A highly agile and active asset allocation approach requires skill, experience and discipline. Led by Michael O'Dea, Perpetual's Multi Asset team has just that; with an average 17 years' judgement and ...
Get it Daily
Keep up to date, don't be the last to know! Get the Financial Standard Daily Newsletter.
Pocket investment guides featuring adviser case studies and a glossary.
Investing trends and strategies from the industry’s thought leaders.
Putting the spotlight on investment products that matter.
Expert Feed
Christopher Page
A new era
After years of back and forth, the legislation to increase the professional standards of financial advisers has been passed. The new ...
Stephen Fay
Starting at the insurance base camp with focus on value
Insurance can be a complex beast, but in a period where its reputation may be strained it is all the more important to talk of some ...
Christopher Page
Redefining the family office
While the family office model has traditionally been the preserve of the ultra-rich, this may be changing very soon. Last week, Findex ...
Michelle Baltazar
Like rocket fuel to a Spaceship
When a superannuation fund calls itself a Spaceship and nobody bats an eyelid, you know you're entering a new era in retirement investing. Spaceship's ...
Featured Profile
Professional Subscription for $295
(inc GST) for 1 year.
FS Advice
The Australian Journal of Financial Planning.
Get the free iPad app
Download the Financial Standard iPad app for FREE.
Link to something NGN1UdJe