Our latest poll suggests four in five advisers do not support any further consolidation in the life insurance sector.
As our story goes to print, 79% of those polled have voted ‘Yes’ to the question:
Do you believe that more life company consolidation will have a negative impact on consumers?
Concern has been raised that further industry consolidation will lead to reduced service levels and also towards greater product ‘commoditisation’, with one adviser commenting:
“The products will become the same, have the same price, and there’ll be less upgrading…”
Responding to riskinfo about the poll results to date, TOWER Australia Managing Director, Jim Minto, said the survey reinforced not only his concerns but reflected the concerns of advisers over life insurance industry consolidation and the potential loss of choice for customers and advisers.
“Consolidation concentrates power and power is not always a good thing,” said Mr Minto, who also drew a parallel with the mortgage broking industry.
In the mortgage broking sector, according to Mr Minto, there has been:
- Changed approval processes for brokers to work with banks
- Reduced remuneration levels for brokers
- Tighter lending terms
- Brokers/Advisers losing accreditation in large numbers because they don’t make specific bank volume levels
“Remember this was an industry that was started by banks closing branches and encouraging brokers to enter the market and provide loans. The brokers did a good job, grew their market value. As soon as the opportunity arose via the GFC the banks made sure their power was restored,” said Mr Minto, adding:
“The only thing that stops this happening in the life market is the presence of non bank life companies. Long may they remain to keep the bank companies competitive and provide competition and choice.”
However, the concern expressed by Mr Minto, advisers and others is about a market sector that is considered capable of absorbing further mergers and/or acquisitions, beyond those already ‘in play’, and still remain sufficiently diverse to maintain competitive activity.
In Credit Suisse’s latest Life Insurance Quarterly Monitor, the firm suggests that industry consolidation is likely to continue:
“We highlight that the Australian market is fragmented to the extent that it can withstand another major merger between two leading industry participants post a sizable merger such as a NAB/AXA noting traditional measures of concentration … remain within acceptable levels at the national level.”
Another fear expressed has been in relation to adviser revenues, with the suggestion that if the banks own the majority of distribution groups, they will be in a position to dictate the level of remuneration paid to advisers.
But would this happen? As Credit Suisse’s research has declared, it considers there will remain sufficient competition within the life insurance sector for normal market forces to apply.
What are your views? Do you believe your clients and yourself will be adversely impacted by further market rationalisation, and that you may lose some control over the level of your remuneration?
Or do you believe that the sector is sufficiently balanced so that there would be little to no adverse client or adviser impact as a result of further acquisitions?
