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Who are the biggest losers in life insurance?
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The life insurance sector has been suffering from large numbers of expensive claims after the GFC. Photo: Michele Mossop
It’s a cut-throat market where claims are on the rise and lawyers are happy to sue companies at the drop of a hat.
Welcome to Australia’s life insurance industry, where profits have been hit by a toxic combination of expensive white-collar claims, low investment returns and a growing number of lawsuits in the past few years.
The verdict is in for the worst performers of 2014-15. Daichi Life-owned TAL, listed insurer AMP and National Australia Bank-owned MLC are the biggest losers of market share in Australia’s $14.7 billion life insurance sector last year.
Those are the findings of Andrew Adams, insurance analyst at Credit Suisse, who said TAL recorded an annual growth rate of just 3 per cent during the 12 months to June 30, compared with the industry average of 10.6 per cent.
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Lawyers are encouraging their clients to sue insurers to pocket big payouts. Photo: Supplied
AMP, which has a market valuation of $17 billion, posted a growth rate of 5 per cent, slightly below that of NAB’s life insurance arm, which posted 6 per cent gains.
The winner was AIA, which grew by a whopping 48 per cent during the same period, driven by new institutional mandate wins and market growth. Zurich Financial Services (18 per cent growth) and Westpac Banking Corp’s life insurance arm (16 per cent) snagged second and third spot.
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“AMP and NAB also continued to lose market share but given the profitability issues in the sector currently, this is not necessarily a bad thing.”
The life insurance sector, which provides death and income protection to Australians, has been suffering from large numbers of expensive claims after the global financial crisis and lawyers encouraging their clients to sue insurers to pocket big payouts.
Insurers have also been hit by falling returns amid a volatile investment market, and financial planners have contributed to the pain by swapping clients from one company to another in a bid to pocket lucrative commissions.
Review sought on life sector
Last Friday, the federal government said it would ban expensive upfront commissions paid to life insurance advisers if the quality of advice in the troubled sector has not improved after a review of the industry in 2018.
Assistant Treasurer Kelly O’Dwyer said the government would ask the Australian Securities and Investment Commission to conduct a review of the life sector and enforce level commission payments if after two years the industry still had not improved its quality of advice.
Australia’s life insurance sector grew to about $14.7 billion in total in-force premiums at the end of June. And while the industry grew at 10.6 per cent last year, this is down from the 12 per cent recorded on average over the past 10 years, Credit Suisse Found.
But there are early signs that the industry’s ill fortunes are on the mend.
Policy lapses – which occur when customers decline to renew their cover – have been slowing. Insurers that have been working hard to educate their customers about the importance of life cover have been making inroads, and encouraging clients to renew their policies.
“Increasing lapse rates have been one issue impacting industry profitability in recent years and most of the listed players have lowered their planned margins on higher lapse rate assumptions,” Mr Adams wrote.
“There is now early evidence that lapses are starting to plateau and even improve slightly. On the adjusted-down planned margins, this should assist in eliminating further experience losses driven by lapse rates in the near term,” he said.
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