Jan 14 2020
Operators in the Life Insurance industry have faced a number of challenges over the past five years, due to losses on disability income insurance policies and volatile investment return. Industry operators are largely affected by total investment income and the total number of claims paid out, both of which can be erratic. Industry revenue is expected to fall at an annualised 10.7% over the five years through 2019-20, to $46.5 billion.
The Life Insurance industry provides protection against the financial hardships that arise from death, disability, major illness or injury. Life insurance is a contract where the insurer must pay designated beneficiaries a sum of money in the event of the insured individual’s death, disablement, serious illness or injury. As with all insurance contracts, exclusions may exist that limit the insurer’s liability.
In December 2017, the Australian Government established the Banking Royal Commission. Its purpose was to inquire about possible misconduct in the Banking, Superannuation and Financial Services Industry. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry delivered its Final Report in February 2019. The report made 15 recommendations relating to the insurance sector with a focus on selling practices, pre-contractual disclosure, claims handling, industry codes and group life insurance. The report recommended legally enforceable industry codes of practice for industry operators, with increased supervision of the sector by the Australian Financial Complaints Authority. The final report of the Banking Royal Commission has sparked a shift in ownership from local banks to foreign specialist life insurance groups over the past five years:
- In October 2016, Japan-based Nippon Life Insurance Group acquired an 80% stake in MLC Limited.
- In September 2017, AIA Australia Limited, a subsidiary of Hong Kong-based AIA Group Limited, entered into an agreement to acquire CBA's life insurance business, CommInsure Life.
- In December 2017, ANZ entered into an agreement to sell OnePath Life to Zurich Financial Services Australia Limited.
- In late October 2018, AMP announced the sale of its Australian and New Zealand insurance businesses to Resolution Life.
- In February 2019, TAL Dai-ichi Life Australia Pty Limited completed the acquisition of Suncorp Life & Superannuation Limited.
Industry revenue is anticipated to grow at an annualised 1.4% over the five years through 2024-25, to total $49.8 million. However, industry revenue performance remains unpredictable, as investment revenue is largely tied to financial market performance.
In March 2019, the Federal Government introduced the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 to prevent life insurance premiums from eroding small superannuation balances. This act is likely to affect industry performance earlier over the next five years, as insurance covers in superannuation accounts that have been inactive for 16 months will be cancelled, starting from 1 July 2019. However, industry revenue performance remains unpredictable, as investment revenue is largely tied to financial market performance. Investment returns are projected to rise over the next five years, as bond rates increase and the All Ordinaries index continues to grow.