Even before the 2018 Royal Commission began, dramatic changes were afoot in the Australian life insurance market.
Over the last three years there have been a spate of acquisitions and divestments which are set to radically change the ownership structure of the life insurance market in 2019.
Five major Australian banks have announced they are vacating the life insurance market with overseas players stepping in and increasing their exposure:
|October 2015||NAB selling 80% of MLC Life Insurance to Nippon Life|
|March 2016||Macquarie Bank selling Macquarie Life to Zurich|
|September 2017||CBA selling its CommInsure life business to AIA|
|December 2017||ANZ Bank selling OnePath Life to Zurich|
|August 2018||Suncorp selling its life insurance business including Asteron Life to TAL|
By June 2019, when all of these deals are expected to be completed, the number of major life insurance companies will fall from 12 to 8. Of the remaining 8, there will be only 3 companies who are majority Australian owned – AMP, BT and ClearView (see below).
The Changing Face of the Australian Life Insurance Industry
As at September 2015
|Life Insurance Companies||Majority|
|Market Share %|
|Total Australian owned||60.2%|
|Total Overseas owned||34.5%|
Projected as at June 2019
|Life Insurance Companies||Majority|
|AIA (incl CommInsure)||Overseas||23.5%|
|TAL (incl Suncorp (Asteron))||Overseas||22.8%|
|Zurich (incl OnePath)||Overseas||14.2%|
|Total Australian owned||20.6%|
|Total Overseas owned||76.3%|
Market Share percentages are as reported by Plan for Life and are based on Premium Inflows (in force premiums plus single premiums for the period). For June 2015 the figures are as reported while projected market shares in June 2019 are calculated using June 2018 figures (released 15th October 2018) modified for acquisitions announced to date.
For the major life insurance companies this will mean a reduction in Australian ownership from 60.2% to 20.6% in market share terms and an increase in overseas ownership from 34.5% to 76.3%.
There will be an increased concentration of market share in the top three overseas owned companies – AIA, TAL and Zurich – which together will control over 60% of the market.
Pundits are divided on whether this consolidation of the life insurance market will be positive or negative for consumers. Usually fewer players in a market means less competition and higher premiums.
The Royal Commission when it makes its final report later this year is likely to condemn the vertical integration business model used by the banks, whereby bank owned advisers and distributors funnelled customers into bank owned insurance products. Clearly under this model there is a conflict between the duty to recommend products solely in a client’s best interests and the bank’s desire to increase sales.
The sale of the banks’ insurance businesses theoretically means that the banks are now free to market insurance products to their clients without conflict. However, as part of their divestment agreements, many of the banks have been happy to tie themselves into 20 year distribution agreements with the purchasing insurance companies. To the extent that this means that bank employees and advisers will now be incentivised to sell their insurance partner’s products it is unlikely that bank customers will benefit from greater product choice.
On the positive side, Japanese insurance companies, such as Dai-ichi Life (who owns 100% of TAL) and Nippon Life (who owns 80% of MLC), tend to have a longer term outlook than the banks and are keen to tap into Australia’s strong population growth rate. The Australian banks have blamed a low return on capital for the need to divest their insurance businesses, but Japanese insurers have indicated that they are prepared to look beyond the current business cycle and take a long term perspective. They have also shown that they are prepared to invest capital in technology to improve underwriting processes and consolidate legacy lines of businesses, something the Australian banks had been unwilling to do. If the result is stable premiums and easier ways to buy life insurance this could potentially improve the experience of Australian consumers.
New players to enter the Australian market
The vacuum created by the banks exiting has also encouraged new players to enter the Australian market. Integrity Life, formerly QBE Life, and Neos Life, underwritten by Nobleoak, are both launching in the retail market this year. Both players boast new technology and underwriting models aimed at challenging the established insurers. To the extent that these new players keep the pressure on the larger insurers to be competitive and innovate this is likely to be good for Australian consumers.
Only time will tell if the banks or the overseas insurance companies are right about the future profitability of the Australian life insurance industry and whether any benefits will flow to consumers.
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