Retail market participants in Australia’s $12.4 billion risk insurance sector are increasing their grip on future growth potential, spearheaded by new, low cost personal superannuation products.
This is a key insight with the release today of Rice Warner’s latest Risk Insurance Market Projections Report.
The report reveals 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 Richard Weatherhead, a Principal at Rice Warner.
“Overall sector growth is healthy at 5% per annum (in real terms), and is despite significant challenges facing the industry in the short term: higher claim and lapse rates and the consequences of lax product terms in the past,” Mr Weatherhead said.
Rice Warner predicted in 2013 a convergence of prices between market segments, primarily 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%”.
“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,” Mr Weatherhead commented.
Other key points:
– Risk insurance is now a $12.4 billion market that will more than double (in today’s dollars) in the next 15 years.
– Future growth of 5.1% per annum (after inflation) will be much 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, providing greater flexibility of product design and avoiding 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.
BACKGROUND
The Rice Warner Risk Insurance Market Projections Report is intended for use by industry practitioners, equity analysts and those with an interest in understanding the risk insurance industry, its place in providing for the financial security of Australians and their dependants, and implications for life insurers, reinsurers and superannuation funds.
The report is compiled based on current statistics and Rice Warner’s analysis and interpretation of likely market trends.
Rice Warner shows changes in the composition and size of the risk insurance market from a base measurement of 30 June 2013 forward 5, 10 and 15 years in nominal dollars (future dollars) as well as in present values (today’s dollars).
The report utilises extensive analysis of risk insurance provided within each industry segment, supplemented by interviews with (and data provided by) insurers, superannuation funds and platform providers. This has enabled the development of a unique breakdown of the current market and forward projections allowing for anticipated industry trends.
The report includes a market analysis overall and by the key industry segments of corporate superannuation funds, corporate stand-alone risk insurance, industry superannuation funds, public sector superannuation funds, employer master trusts, financial adviser sold superannuation risk insurance, financial adviser sold non superannuation risk insurance and direct risk insurance.
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