The life insurance industry in Australia is projected to decline at a compound annual growth rate (CAGR) of 0.9% from AUD34.8bn (US$23.6bn) in 2020 to AUD33.3bn (US$22.7bn) in 2025, in terms of gross written premium (GWP), due to the macroeconomic challenges from the COVID-19 pandemic and structural reforms, according to GlobalData, a leading data and analytics company.
GlobalData’s strategic intelligence report, ‘Australia Life Insurance: Key Trends and Opportunities to 2025’, reveals that the Australian life insurance industry, which was already battling heavy losses from the bushfire damage, continued to decline in 2020 as lockdown measures curtailed economic growth.
Deblina Mitra, Insurance Analyst at GlobalData, comments: “Unemployment increased from 5.1% in 2019 to 6.8% in 2020, lowering the demand for insurance. Volatilities in financial market also negatively impacted the performance of investment linked life insurance policies.”
As per latest data from the Australian Prudential Regulation Authority (APRA), overall life insurance net policy revenue declined by 10.4% in the quarter ended December 2020. For investment linked policies, the decline was 77.8%.
Ms Mitra continues: “Even before the pandemic, restrictions by regulators resulted in life insurers steadily losing revenue during the last five years. This includes 2016 regulation on gradual capping on intermediary remuneration and 2019 regulation on conditional enrolment in life insurance policies subscribed through super funds.
In addition to this, large scale mis-selling practices and high claims rejection by insurers, resulted in public distrust and negatively affected insurance sales. As per official figures, insurers rejected one in seven trauma claims and one in six ‘total and permanent disability’ claims in 2016. This resulted in the regulator enacting Life Insurance Code of Practice in 2017 to restore public confidence.
Along with pandemic related challenges, the April 2020 regulations on super funds further contributed to decline in group risk business in 2020. The changes include implementation of super fund minimum account balance of AUD6,000 (US$4,160.3) and raising minimum age to 25 year for subscription. As a result, net policy revenue of group risk insurance under super funds declined by 6.4% in the second half of 2020.
Among these challenges, ‘individual lump sum’ emerged as the only profitable risk insurance line within life insurance. Its net policy revenue grew by 3.0% in the quarter ending December 2020. Increased awareness due to COVID-19 pandemic and ease of purchase through digital channels facilitated demand for this product.
Ms Mitra concludes: “Recovery in the job market and full economic recovery expected over the second half of 2021 will bring stability to the life insurance industry. The recovery will be gradual as the industry comes to terms with full-scale impact of structural changes.”
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