Profits in Australia’s life insurance industry experienced a significant boost during the last financial year, doubling to $1.2 billion, as reported by KPMG’s annual market review. This increase can be attributed to a rise in premiums for individual-advised disability income life policies, which saw a substantial growth of 10 to 12 percent. Insurers have been striving to offset losses and improve profitability, leading to a continued upward trend.
The review also highlighted a 4 percent increase in average costs for combined individual and group disability insurance and total and permanent disability (TPD) policies. This comes after significant increases of 34 percent and 45 percent in the past two years due to legislative changes that removed many young people from default insurance in superannuation.
Industry premium income experienced a 4.1 percent jump to $17.9 billion, primarily due to inflation. Age-related factors and the need to address rising claims costs and losses in recent years also contributed to this increase. However, the report noted an increase in lapse rates for policies arranged through Independent Financial Advisers (IFAs), indicating a decline in the number of people purchasing death and disability income insurance policies through advisers.
Briallen Cummings, KPMG Actuarial Partner, highlighted the impact of economic pressures and rising premium costs on lapse rates but noted that they were still lower than in 2019. Cummings emphasized the importance of insurers focusing on costs, expenses, and operational efficiencies to further enhance the industry.
Looking ahead, Cummings expressed hope for innovation in the industry, urging companies to explore growth beyond traditional IFA channels. Despite uncertain economic conditions and ongoing regulatory changes, the industry will be pleased to have achieved its second year of profits after a challenging period.
In a separate report, Deloitte stated that the Australian life insurance risk industry failed to achieve growth in nominal or real terms due to unexpectedly higher claim costs. This has resulted in a significant underinsurance issue, with the Australian public being 60 to 80 percent underinsured. Deloitte estimated that Australian families could have claimed $25 billion last year if not for underinsurance. They emphasized that addressing the needs of the underserved and underinsured population, particularly the middle-income segment, could triple the size of the life insurance industry. Deloitte called for innovation in product offerings, channels, network management, and engagement to effectively serve this market and achieve growth while prioritizing the social good agenda.