Australia’s life insurance industry doubled its profits to $1.2bn in the 12 months to 30 June 2023, KPMG’s annual market review reveals.

The cost of premiums for individual-advised disability income life policies rose by 10-12 percent, consistent with recent years, as insurers tried to staunch losses and boost profitability.

The average costs of combined individual and group disability insurance and TPD increased by just 4 percent and 3 percent respectively over the past year after the huge hikes of 34 percent and 45 percent seen in the previous two years as a result of the Protecting Your Super (PYS) and Putting Members interest First (PMIF) legislation which took many young people out of default insurance in super. The result was that premiums increased significantly for the mostly older people who remained in the schemes.

Industry premium income rose 4.1 percent to $17.9bn, although much of this was due to inflation and price increases across the market, some age-related but partly in response to rising claims costs and losses over recent years.

The lapse rates for policies arranged through Independent Financial Advisers rose, but overall the number of lives insured by the market has stabilised after falling for several years.

Briallen Cummings, KPMG Actuarial partner, said; “We can see the impact of the decline in the number of IFAs, with a drop in the amount of people buying death and disability income insurance policies through advisers. The economic pressures on consumers and rise in premium costs has contributed to lapse rates starting to increase. Having said that, the lapse rates in 2022 were still lower than in 2019, which shows a resilience in the industry.  

“The figures are mixed, with some areas increasing in profitability and others declining. Profitability on non-risk products surged by $1.3bn from last year although much of this was due to more favourable investment markets. By contrast, profitability on risk products declined by $0.8bn from 2022 and profits on individual disability insurance and lump sum business fell substantially, reflecting increases in claims and the absence of one-off items such as the release of the reserves companies held for COVID-19 claims, which largely did not eventuate.

“But following the sustained period of unprofitability for the industry from 2019-21, we can see the impact of insurers repricing existing business. We expect to see an ongoing focus on costs and expenses and embedding business efficiencies to further improve profit levels. We also hope to see innovation in the industry as companies look beyond traditional IFA channels for growth. Overall, after some bleak recent years, the industry will be gratified to have had its second year of profits, especially given the uncertain economic backdrop and ongoing changes in the regulatory environment.”     

The report also observed that the group life market remains highly concentrated with a few providers. The focus by APRA on consolidating superannuation funds has a similar impact on group insurance and is potentially further adding to the market concentration. This market shrank considerably following the PYS and PMIF regulatory changes but has been stable over the past 2 years.

Detailed findings from the KPMG review:

  • Statutory fund profits doubled at $1.2b in FY2023 from $0.6b in FY2022.
  • Risk Products reported profits of $0.4b, down from $1.2b in FY2022, but higher than the loss of -$20m observed in FY2021. All product types other than retail lump sum products were profitable after tax, although Group Salary Continuance recorded a loss before tax.
  • Non-Risk Products reported profits of $0.7b in FY2023 a recovery from losses of -$0.6bn in FY2022 and similar to profits of $0.6b in FY2021.
  • Retail Risk Disability Income was the only product where paid claims as a proportion of premium decreased in FY2023 compared to FY2022. Retail Risk Lump Sum has the lowest ratio of claims to premium of all the benefits, although it experienced the highest level of paid claims as a proportion of premiums received this year compared to the past the last 4 years.
  • Group Risk Products paid claims as a proportion of premiums received increased from FY2022, returning for lump sum products to levels similar to FY2018 and FY2019.
  • The annual reported profits (noting that year ends differ by company) had the reinsurers reporting losses after tax of $0.3b with 5 of the 7 reinsurers experiencing losses. By contrast direct insurers reported profits of $0.8b with 14 of the 18 insurers reporting profits.
  • The overall capital position across the industry remains strong, noting that the published APRA statistics do not include any supervisory adjustments imposed by APRA as part of their IDII sustainability measures (or for any other reason) and therefore the capital position shown is likely substantially stronger than the true underlying capital position.

For further information

Ian Welch
+61 400818 891