Australia’s life insurance industry saw a remarkable upswing in profits, doubling to $1.2 billion (US$758 million) in the fiscal year ending on June 30, 2023, according to KPMG’s annual market review.
Premiums for individual-advised disability income life policies witnessed a substantial increase of 10 percent to 12 percent. This continued upward trend aligns with previous years as insurers strive to offset losses and enhance profitability, KPMG said.
The review noted that average costs of combined individual and group disability insurance and total and permanent disability (TPD) rose by 4 percent and 3 percent, respectively, over the previous year. This follows hefty increases of 34 percent and 45 percent seen in the past two years due to the Protecting Your Super (PYS) and Putting Members’ Interest First (PMIF) legislation which took many young people out of default insurance in super.
Industry premium income jumped 4.1 percent to $17.9 billion, largely attributed to inflation. Some other reasons for this increase were age-related, although it was also partly to address rising claims costs and losses over the recent years.
The report, however, noted that the lapse rates for policies arranged through Independent Financial Advisers (IFAs) increased.
“We can see the impact of the decline in the number of IFAs, with a drop in the amount of people buying death and disability income insurance policies through advisers,” KPMG Actuarial Partner Briallen Cummings said.
“The economic pressures on consumers and rise in premium costs has contributed to lapse rates starting to increase. Having said that, the lapse rates in 2022 were still lower than in 2019, which shows resilience in the industry.”
Ms. Cummings added that the ongoing focus of insurers on costs and expenses and operational efficiencies will further improve further levels.
“We also hope to see innovation in the industry as companies look beyond traditional IFA channels for growth,” she said.
“Overall, after some bleak recent years, the industry will be gratified to have had its second year of profits, especially given the uncertain economic backdrop and ongoing changes in the regulatory environment.”
Life Insurers Can Triple In Size
In August, Deloitte said that the Australian life insurance risk industry failed to achieve growth in neither nominal nor real terms and that unexpectedly higher claim costs have impacted profits.Due to the poor growth of the sector, the Australian public is up to 60 percent to 80 percent underinsured, the professional services provider said.
Deloitte estimated that if not because of underinsurance, Australian families could have claimed $25 billion last year. Deloitte said that the life insurance industry could triple its size by addressing the needs of the underserved and underinsured population of the market, such as the middle-income segment.
The company said that its 2020 research unveiled that Australians collectively only had insurance covering 42 percent of death requirements, 18 percent of TPD needs, and 34 percent of income protection needs, and such a gap has widened since.
“Life insurers have the opportunity to reach and better serve this middle market through innovation in product, channel, network management and engagement. Success will be achieved when insurers take a system-wide view and place the social good agenda alongside their own growth ambitions,” Deloitte said.
