Australia’s major retail life insurers are reporting mixed profitability results, prompting at least one industry stakeholder to question whether there may be a sustainability issue looming for the industry.
Suncorp Life’s Executive General Manager, Products and Services, Sean Carroll, has raised concerns about the long-term sustainability of the industry in light of recent company reports showing a fall in profits.
Speaking during the Sydney leg of Asteron Life’s recent adviser roadshows, Mr Carroll said consumer behaviour was shortening the average length of insurance contracts, which in turn was leading to profitability issues.
“A cultural trait of our industry is that we’re very acquisition focused. We base a lot of our products, our processes, our reward systems on attracting new clients, on getting people through the door. We often see keeping those clients as a secondary issue. We think if we keep our products and services kind of okay, then inertia’s going to do the rest, and dare I say it, we’re even somewhat complacent about that. But that’s got to change,” Mr Carroll said.
“Every time we write a policy it costs us money. In fact, every dollar we put on the books, when you take into account commission costs, underwriting costs and all the other costs that go into setting up a policy, every dollar costs us around $1.50-$2.00 to write. And we recover that over the life of the contract so economically it can make sense.
“But consumer behaviour is actually shortening the length of contracts. So we’re seeing our profitability come under pressure. And in the short-term, the shareholder meets that cost. But in the long term, it has to be the consumer that pays. In the long term, everything equalises.”
… we’re seeing our profitability come under pressure
An example of falling profitability can be seen in AMP’s report to shareholders on its profit for the six months to December 2012. AMP said its wealth protection earnings were down by over $50 million on the same period in 2011. The group attributed this result to poor claims and lapse experience, saying lapses were at their highest levels in more than a decade.
In what it labelled a ‘challenging risk insurance market’, AMP still reported an increase in annual premium income (up 6% in the year ending December 2012), but noted that profitability was declining; a position the company said was ‘consistent with the broader industry’.
In contrast, BT Financial Group’s outlook was far more positive, as the group celebrated the second anniversary of the launch of its Protection Plans offer by claiming the title of fastest growing life insurance provider by market share.
BT reported new premium growth of 36% per annum, saying the growth was underpinned by fee flexibility and efficient systems.
“BT’s life insurance growth story boils down to how we make life insurance easy for advisers,” said Phil Hay, Head of Life Insurance at BT. “We saw an opportunity to help advisers adapt to the changing and increasingly more complex regulatory environment, so we became the first – and we are still the only – life insurer to allow advisers to charge on a fee-for-service basis, and facilitate that process for them.”
BT’s life insurance growth story boils down to how we make life insurance easy for advisers
Mr Hay said BT planned to continue to expand its distribution footprint in 2013, with a strategic focus on increasing the awareness of its products in the market.
The other relatively new player in the retail insurance market, ClearView, shared this optimism for growth, despite a drop in net profit after tax for the period ending December 2012.
According to ClearView’s report to shareholders earlier this month, the group’s underlying net profit after tax for the six months to December 2012 decreased by $0.6m (6.6%) compared with that for the half year ended 31 December 2011.
However, Director Simon Swanson said he was excited and encouraged to see the current growth in business, which he believes will continue into the second half of the financial year. In the six months to December 2012, ClearView generated $9.9 million in new business, compared with $0.8 million the previous year (when the product was first launched). As proof of this optimistic approach, Mr Swanson said the group was looking to review its current reinsurance arrangements to further support business growth.
