Risk market business booming
In the first of what will be a regular feature Good Returns provides its readers with a detailed report on product and market share trends in the insurance products.
Wednesday, December 23rd 1998, 12:00AM
Managed funds lapped up all the glory at the end of the September quarter after recording record inflows of money following a number of consecutive bad quarters. The untold story in the financial services industry is how well the markets for risk products have been doing.
While publicly available information on what is happening in the risk markets is difficult to obtain at present, Good Returns can provide readers with an insight into what products are doing well and how each company is performing.
Looking at the big picture, statistics from the Investment Savings and Insurance Association reveal several clear and long-running trends on the market.
The main one is that the traditional life insurance products such as whole of life and endowment policies are continuing to diminish in size. For instance whole of life in force annual premium income continues to fall by about 2 per cent a quarter. Since September 30, 1997 it has shed $15 million and the number of policies on issue is down 38,282 to 489,275.
While the total numbers of policies and annual premium income in these traditional product classes are declining, they still account for a major chunk of the risk market.
ISI acting chief executive Vance Arkinstall says for the 12 months ending September 31 premium income for all life insurance and superannuation business increased by 6.05 per cent to $2,496 million.
The lack of demand for traditional, bundled products, and the customers' desire for more specific insurance and living assurance products has two significant developments during the year.
First up, and arguably the most important, is AMP's Operation Morph, which is designed to allow its customers to switch from older style products to more modern and flexible contracts. (see earlier story).
Guardian Assurance embarked on a similar conversion project late this year, and says it has been such a success the scheme will be extended another two months to February.
The growth in the risk markets has been coming from term life and the so-called living assurance products such as trauma cover, and this is expected to continue.
In the September quarter new business for term life was up 21 per cent, income replacement up 16.7 per cent, and trauma up 13.3 per cent.
While there are no statistics on premium levels the overall trend is that they are generally decreasing across the board the one glaring exception is in disability, or income protection insurance.
There is so much concern about this product that the Insurance Institute recently ran a nationwide roadshow for advisers with the underlying message being that advisers need to be extremely careful filling in proposal forms for income protection policies and claims.
Overseas experience, particularly in the United States has shown that the level of claims has ballooned out forcing premiums skyward.
While New Zealand is not at that point yet, it is coming to a head.
National Insurance Life and Health senior manager underwriting and claims David Rodgers says in the US companies are putting serve restrictions on IP products.
He says it is now difficult to get a waiting period of less than 60 days, there is strict underwriting and benefit periods are reducing. On top of that many occupations have been moved into a higher category.
Rodgers says some companies are choosing to withdraw from the IP market.
Much of the problem with IP contracts centres around the claims for stress and depression. In total they account for about a third of all claims, and that proportion is expected to grow.
The reason they are such a problem is that such claims are subjective, very hard to define and difficult to police.
Swiss Re Life and Health New Zealand risk manager Sheryl Dean says in New Zealand the claims process is being tightened by the introduction of forensic accounting and life offices employing nurses to help with claims assessments.
She points out not all claimants are fraudsters, however a number are and they are costing the life company and ultimately all policyholders money.
Trauma
In the September quarter new API business for trauma products was up 13.3 per cent to $876,000 and there is now a total of $8,471,000 in-force API for this group.
While this is a very small part of the total risk market it is expected to grow rapidly.
PlanTech Consulting Group research analyst Louie Dimovski says trauma does seem to be getting more competitive and that competition is likely to heat up. He says there has been more of a focus on trauma products in the past year with a number of companies not only adding more conditions to their products, but also making the definitions less restrictive.
"If there have been premium increases it's because the life offices have increased their provisions," he says.
Overseas trauma insurance has been one of the big growth products, however in Australia it makes up less than 10 per cent of the market and in New Zealand the proportion is smaller.
Dimovski believes there will be strong growth in trauma business in New Zealand in 1999.
Market shares
The following table illustrates the growth and market share figures for annual premium and single premium business
|
Annual premium New business Rolling 12 mth basis |
Single premium New business Rolling 12 mth basis |
|||
|
Life Office |
Annual premium |
%change over '97 |
Single premium |
%change over '97 |
|
AMP |
38,258 |
72 |
147,915 |
200 |
|
Colonial |
37,884 |
-30 |
41,635 |
24 |
|
Sovereign Assurance |
29,188 |
15 |
196,323 |
286 |
|
Royal & SunAlliance |
22,718 |
-13 |
40,447 |
18 |
|
National Mutual |
19,790 |
-7 |
34,989 |
10 |
|
BNZ Life |
18,028 |
23 |
118,890 |
102 |
|
Guardian Assurance |
11,864 |
26 |
106,445 |
-4 |
|
Tower |
10,791 |
24 |
141,827 |
4 |
|
Westpac Life |
10,450 |
2 |
46,008 |
-32 |
|
Fidelity Life |
7,176 |
6 |
3,610 |
45 |
|
National Insurance |
4,836 |
-3 |
66 |
38 |
|
CIGNA Life |
3,910 |
-3 |
1,002 |
38 |
|
AIA |
2,754 |
60 |
- |
- |
|
Farmers Mutual Life |
2,324 |
54 |
- |
- |
|
ANZ Life |
2,316 |
27 |
1,561 |
-61 |
|
NBNZ Life |
1,924 |
70 |
3,478 |
12 |
|
Countrywide Life |
1,204 |
-11 |
25,109 |
69 |
|
Medical Life |
486 |
3 |
- |
- |
Watch out for Good Returns' Special Report in February which will be examining medical insurance.
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