Advised risk continues to dwindle

According to KPMG’s Life Insurance Insights 2023, lapse rates for risk insurance among advised clients has increased while new business rates among the same cohort have fallen throughout 2022. This is despite life insurance premium income (excluding reinsurance) expanding 4.1 per cent to $18.6 billion a year.

“Lapse rates for individual advised business started to increase in 2022 reflecting the cost-of-living pressures, however, the lapse rates remain lower than 2019,” KPMG said.

“New business rates for both death and disability income insurance continued to decrease for individual advised business. These will be influenced by several factors, including the number of registered IFAs continuing to fall, increasing premium rates for legacy IDII benefits and increasing pressure on the cost of living (high inflation and rising interest rates).”

The lapse rate for individual advised TPD and disability insurance both saw small increases over the last 12 months, up 0.7 percentage points and 0.3 percentage points, respectively. However, the lapse rate for death cover jumped from 12.8 per cent to 14.1 per cent at the end of 2022.

The outlook for advised clients as a percentage of overall new insurance premiums is even bleaker, with advised clients making up 9.1 per cent of all new TPD premiums in June 2018, compared with just 4.3 per cent in 2022.

A similar drop is seen in advised disability cover, which has fallen from 8.9 per cent to 2.9 per cent over the same period, and advised death cover, which has dropped to 2.7 per cent from 5.8 per cent.

KPMG also found that the number of lives insured by the market is stable after several years of decreases. The firm, however, attributed much of the growth in premium income to higher premiums driven by inflation and “price increases across the market, some age related, but some in response to rising claims costs and losses over recent years”.

“The lower financial results observed for risk products may arise from a number of factors including that last year’s results may have been impacted by one-off events as COVID-19 reserves being unwound,” KPMG said.

“However, the increased profitability (following a sustained period of unprofitability (FY2019 – FY2021) reflects the impact of several years of repricing existing business for the purpose of improving profitability.”

On the back of these factors, KPMG said that organic market growth continues to prove challenging for the industry.

Looking at group insurance, KPMG highlighted the impact of superannuation fund consolidation on increasing market concentration. The major beneficiaries of the concentration are TAL and AIA, which collectively insure 74 per cent of this segment.

“This market shrank considerably following the Protect Your Super (PYS) and Putting Members’ Interest First (PMIF) regulatory changes but has been stable over the past two years,” the firm said.

“The number of group super benefits issued in the industry decreased from 29.7 million benefits as at 30 June 2019 to 20.1 million benefits as at 31 December 2021 to 20.5 million benefits at 31 December 2022.”

The individual non-advised direct market has seen a similar decline, with lives insured decreasing to 3.3 million at 31 December 2022, from 5.0 million at 30 June 2019, which KPMG noted as a result of the reforms following the financial services royal commission. It added that the majority of the change flowed from the decrease in consumer credit insurance.

The retail market is, however, more diversified across providers, with TAL, Zurich, AIA, MLC, and Resolution insuring 73 per cent of lives and taking in 88 per cent of premiums.