Group life insurance under pressure

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Last week Zurich announced its decision to close its doors to the group life insurance market after huge challenges within the insurance landscape has seen smaller players increasingly being priced out of the game.

Richard Dunkerley, head of marketing for life and investments business at Zurich, told Wealth Professional that a number of factors have made it impossible for the global financial services company to price group insurance premiums competitively – and it’s a story “bigger” than just Zurich.

“I think that certainly the industry has some challenges that it hasn’t faced before, and the last 12 months have seen an increase in the claims experience, particularly within TPD,” he said. “I think generally post-GFC there’s been certain socio-economic factors. It’s something insurers are quite conscious of and speak about a lot.”

He said retrospectively the increase in claims experience could partially be a result of overly sharp pricing, which has been reflective of the highly competitive nature of the group market, particularly when it comes to sealing deals with big industry funds.

“It’s a challenging market,” said Dunkerley. “I think it’s significant in that companies are having to make adjustments to premium rates. It’s significant in that you’ve got some reinsurers who have pulled out of sectors all together, or are being a lot more discriminatory.”

And as well as these challenges, Australia also has some of the strictest capital requirements in the world, meaning that the group life sector must hold huge deposits of capital in case of failure.

The type of businesses that will be able to operate viably or profitably are more than likely going to be players that have scale, Dunkerley said.

He predicts that in order to adjust to problems faced within group life insurance; the industry could go down a number of routes.

“Firstly, we’re going to see pricing adjustments so there’s a better match to the risk. You might well also see some insurers or reinsurers changing the design of some of the covers offered,” he said. “On a higher level, the more people that understand what they’re covered for means a better informed clientele. Ultimately, the more people that have cover and the better it’s aligned to their circumstances, the better.”

Dunkerley said Zurich’s decision to withdraw from the group life insurance market wasn’t made lightly when taking into consideration the existing customers and distribution partners.

But the company felt it was a necessary and obvious stand-alone business decision.

Group life insurance is a very small part of Zurich’s overall activities, and staffing impacts will be limited, with only two roles immediately affected.

“It’s also in contrast to other parts of the business which are doing extremely well and are not affected by this decision,” Dunkerley said.

The phased withdrawal will see Zurich close its book to new mandates immediately, whilst continuing to provide cover and support to existing clients for the agreed contract length and premium.

“For our existing clients, up until their plan comes up for renewal, there will be no change,” he said. “When it does, we’ll be less well-placed to offer them a renewal premium that’s competitive. They will likely be able to find more competitive rates elsewhere.” 

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