Retail life insurance is set to dominate the risk market, predicts independent researcher Rice Warner.
Retail market players in Australia’s $12.4 billion risk insurance sector are increasing their future growth potential – spearheaded by new, low cost personal superannuation products.
Rice Warner’s latest Risk Insurance Market Projections report shows a dynamic market with growth of 5.1% per annum after inflation over the next 15 years. However, the retail component of the market is expected to achieve stronger overall growth.
Risk insurance sold through personal superannuation will grow at the rate of 6.7% per annum in real terms, faster than anticipated in previous research and reflecting the growth of bank-developed ‘low-cost’ superannuation products to compete directly with not-for-profit funds.
As a result, industry fund, public sector fund and employer master trust insurance will grow more slowly than other segments.
“The relatively strong anticipated growth of retail superannuation risk insurance reflects the growth of risk insurance sold in conjunction with new, low-cost personal super products,” said Rice Warner principal Richard Weatherhead.
“Overall sector growth is healthy at 5% per annum – in real terms – and is despite significant challenges facing the industry in the short term [which are] higher claim and lapse rates and the consequences of lax product terms in the past.”
Last year, Rice Warner predicted a prices merging between market segments, reflecting price increases within industry funds and other employer-based superannuation risk insurance arrangements.
“This has certainly occurred, with several superannuation funds announcing price increases in excess of 50% and, in some cases, over 80%,” Weatherhead said.
“The major trend in the composition of the market in the future will be the growth of low cost personal superannuation products, marketed by the banks and wealth managers, with risk insurance cover in this segment growing accordingly, at the expense of other segments.”
The report is compiled with current statistics and Rice Warner’s analysis and interpretation of likely market trends, supplemented by interviews with – and data provided by – insurers, superannuation funds and platform providers.
Rice Warner shows changes in the composition and size of the risk insurance market from a base measurement of 30 June 2013 forward five, 10 and 15 years in future dollars as well as in today’s dollars.
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- Risk insurance is now a $12.4 billion market, which will more than double – in today’s dollars – in the next 15 years.
- Future growth of 5.1% per annum – after inflation – will be more subdued than the 9.9% per annum achieved over the last 15 years.
- The corporate standalone risk insurance market will grow at 6.5% per annum in real terms, driven by employers wishing to provide cover for employees and, in some cases, arranging this outside the traditional superannuation environment. This will provide greater flexibility of product design and avoid the complexity of managing concessional contribution limits.
- By 30 June 2028, 60% of the market – in terms of amount of cover – will be retail business and 40% wholesale business. This compares with 45% retail and 55% wholesale at 30 June 2013.