Year in Review: Insurance
Privatising accident insurance was the insurance industry's big bang in 1999 - and it may get louder next year. 1999 was also the year where the differences between policies diminished significantly.
Tuesday, December 21st 1999, 12:00AM
The insurance industry is a funny one in that it doesn't have big events, or milestones, like the investment and savings market.
"It's been a fairly stock standard kind of year," Colonial manager risk products Bharat Mehta says.
But despite lots more of the same there was one major event during the year and that was the creation of the private accident insurance market. No doubt the big issue in 2000 will be its destruction.
The start of the year saw six companies scrambling to get the necessary systems in place for the launch of the market on July 1.
It's interesting to note that only one of the big life offices, Royal & SunAlliance (RSA) choose to offer product in this market. In the end Fusion Insurance, a joint venture between RSA, Southern Cross Healthcare and GMV Associates, gained the most market share.
The remaining big companies that didn't get involved in the market made arrangements to distribute the products of competing firms, such as Colonial's deal to use HIH.
One of the big issues for insurance companies following the privatisation of the market has been how to integrate income protection with accident insurance. (See earlier story)
Swiss re Life and Health considers the introduction of competition has created significant opportunities for insurers to "radically alter their disability income products."
This hasn't happened to date, however disturbing trends in the disability market mean it is imperative life offices address the issues.
For a number of years now life offices have been struggling in this market and making losses. AXA recently announced that it has lost A$22 million in the 12 months to September in this market segment in Australia, and other companies are struggling to run profitable disability books.
During the past 12 months at least four companies (American International, Colonial, Royal & SunAlliance and Sovereign) have all hiked their premiums.
According to AXA NZ chief executive Ross McEwan the reason for poor profitability is due to the increasing length of claim period. (Good Returns will be running a feature on this in January).
While income protection premiums are heading up term life premiums continue to fall.
For years now term life has been treated as a commodity-like product and premiums have been driven lower and lower, in what seems a never-ending spiral.
Term life is also one area banks have been highly successful in as they have a captive market with their mortgage customers.
While premiums have been falling the rate of decline appears to be levelling off.
Strategy Financial Services director Graeme Lindsay says one of the developments in the term life market has been that there is now little difference between each of the players, and the banks have made significant progress in making their contracts competitive.
"The banks were hopelessly uncompetitive for some time," he says. Now they are offering products that match the life offices.
Mehta says that tend is not confined to the term life market.
There is little to distinguish contracts and product features have become pretty generic in life cover, he says.
"The below average products have now come up to speed."
Trauma is one area where the market is still trying to work itself out, he says.
For years it has been labelled as the life product which has potential for significant growth, however the growth has never really materialised.
While the number of contracts in force has grown it's been off a very low base.
Mehta says there used to be a reasonable range of differences in trauma products, however they were now starting to find some middle ground.
"I don't think it is a product which has been as aggressively priced as income protection," he says.
Generally the industry holds out hope trauma will be a big winner in future years, however agents must first work out how to sell it.
While there have been no knock out product developments in the past year, life offices have moved to embrace the omnibus, or modular insurance packages where a number of different contracts can be held under one policy umbrella.
RSA has its Smartplan, AIA has MasterCover, Colonial has TotalCare and so it goes on. The one company which hasn't produced a modular package yet is AMP.
The key drivers behind the modular policies are that they are easier to manage, a client only has to pay one policy fee and they offer flexibility.
In many ways the modular package is like a portfolio of policies, which could be considered the equivalent to an investment portfolio.
Largely absent from the market during the year has been fresh merger and acquisition activity. Royal & SunAlliance has spent the year digesting its purchase of Guardian Assurance, (and Guardian Trust on the investment side), likewise Colonial has been integrating Prudential into its business.
Last year's new entrant Pinnacle, which is only focussed on the term life business, has had little impact on the market.
The only new player this year is Lumley Insurance that is expanding its fire and general operations to include life policies. (See story)
One area life offices have led their investment counterparts is in the use of the Internet as a point of direct distribution. It is now possible to obtain quotes, or even buy policies online through AMP (www.amp.co.nz). A number of other companies offer car, house and contents and travel insurance over the Internet, and no doubt life products will soon be widely available.
Likewise, several players have harnessed the Internet to help run their businesses more efficiently. Cigna launched an online application package that allows advisers to submit and follow the processing of their proposals electronically, and AIA has a section on its website (www.aia.co.nz) where advisers can access specific information.
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