Australia’s life insurance market on the rise but there is room to grow

26 Apr 2016

The life insurance industry in Australia accounted for 51.5% of gross written premiums in 2015, with the market growing from AUD41.9bn (US$43.2bn) in 2011 to AUD64.5bn (US$49.7bn) in 2015, at a CAGR of 11.4%. The future of the market also remains bright – Timetric forecasts the life insurance segment to record a healthy growth and reach AUD91.2bn (US$65.8bn) by 2020. However, the life sector in Australia is still underinsured, but reforms to the pay structure of life insurance advisors along with other measures are expected to reduce the insurance gap.

Underinsurance opens up untapped opportunities

Underinsurance in Australia provides an opportunity for growth. The country's life insurance penetration rate was 3.67% in 2015, compared to 15.35% and 13.79% in Taiwan and Hong Kong respectively - indicating that much of the population is still underinsured.

Timetric's Insurance Analyst Jerome Walcott comments: "One common explanation for this insurance gap, is the fact that the working population is covered by mandatory superannuation insurance. This discourages the working age population from buying other life products that would give them the appropriate amount of coverage for the multitude of risks they face or should insure against. The growth opportunity for life insurers will likely depend upon more consumer education of the benefits of life products. Yet another important factor in improving distribution of life insurance is to change the remuneration of life insurance advisors."

Insurance commissions to become capped

Life insurance advisers can currently earn up to 120% (gross of fees and taxes) on the first year premium of life insurance products they sell. The federal government in its life insurance reform package included provisions that would limit upfront commission to life insurance advisors at a maximum rate of 80% starting from July 1, 2016 - a rate that will stagger down to 60% by July 1, 2018. Furthermore, ongoing commission will be capped at a maximum of 20%.

"The reforms aim to provide significant benefits to consumers in terms of improved quality of advice, more product choice and greater competition. Their success will be significant for the overall growth of the life segment up until 2020," Walcott comments.

All information is based on the Timetric report: 'Life Insurance in Australia, Key Trends and Opportunities to 2020'.

Source: Company Press Release