The volume of life insurance provided to Australians by superannuation funds is likely to grow if the retail insurance sector doesn’t “sort itself out”, consulting firm Rice Warner has cautioned.
The past few years have seen premiums increase and the number of available insurance products grow, but the industry continues to lose money, Rice Warner said in a statement, with $1.5 billion being lost in retail income protection in the last four years alone.
Efforts to stifle these losses by increasing premiums by 30 per cent or more have not rectified the situation, the statement said, and losses continue.
The statement said that insurance companies were increasingly offering new types of cover, benefits, features and pricing options in a bid to remain competitive and make their way on to advisers’ approved product lists (APLs), but that these were not achieving the desired outcome.
“In recent years, insurers have been in an arms race to release more options and cover variants to the market. The aim has been to meet as many potential customers’ needs as possible,” the statement said.
“However, this has led to product definitions becoming more lenient and proliferation of benefits without the necessary adjustments to product pricing.”
Additionally, the trend towards ‘simplified benefits’ was designed to help rein in the cost of policies to more affordable levels, Rice Warner said, but these are “difficult to sell through advisers”.
“Advisers have a duty to look after the interests of their clients and many are cautious about recommending customers take a simplified product as these products can appear less valuable than the products they replace,” the statement said.
Rice Warner warned that “a catalyst is needed to break this cycle” or the retail sector will risk losing business to group insurance offered through superannuation funds.
“Already, much of life insurance in Australia is provided through superannuation and this share will grow if the retail market does not sort itself out,” the statement said.
“Retail premium rates cannot keep rising, or group products will become even more competitive and advisers will be squeezed out.”