Australia Sees Increase in Direct Life Insurance Sales

Australia has seen a 26.6% rise in sales of direct life insurance products in the past year, driven by technology advances for direct channels, better profit margins and competition in other distribution channels. The direct distribution channels now sell 138 products in Australia, up from 109 in 2008. The increase was primarily in term insurance, offering death, total and permanent disability and trauma cover, according to a research report by Rice Warner, an actuarial and management consultant firm.

This is a significant rise and the growth potential represents a good opportunity for life insurance companies, Richard Weatherhead, director of Rice Warner, told BestWire.

In Australia, there are 27 insurers active in the direct life insurance market. Most life insurance is sold through superannuation funds, primarily as default cover provided to all members, or through the retail market via intermediated sales, according to the report.

Competition in the two traditional channels will make direct distribution a key growth area for life insurance companies over the next few years, said Rice Warner in the report.

Insurers can usually achieve a higher profit margin through the direct channels, said Weatherhead. The direct retail distribution channels have been “around for some time” but they had been under-developed.

In the past few years, Weatherhead said direct channels have become more popular. These channels include the Internet, telephone, television, direct mailing and retail shops. Like the United Kingdom, Weatherhead said Australia is open to innovations such as Web-based insurance sales.

Direct life insurance, excluding loan and mortgage insurance, accounted for 13.8% of overall risk insurance sales and 10% of in-force business in Australia, according to the report.

In Australia, direct products are priced at between 85% and 125% of intermediated products, with variations among products and age range.

Direct products are generally more expensive than obtaining cover through the superannuation fund, according to Rice Warner. Direct products are priced at between 150% and 400% of superannuation fund products.

Although awareness of direct distribution channels has increased in Australia, it is important to drive sales through these channels. In the past, Weatherhead said a lot of money had been wasted and there were more failures than successful cases.

The direct life insurance market segment “must be well targeted,” said Weatherhead. The strategy must be a “micro-marketing” rather than a mass market approach for direct channels, with emphasis on technological benefits and supports.

The increase in sales of direct insurance products has relied heavily on the Internet, not only to promote the products but to assist the sales and customer service management. The Internet can serve as “a conduit to an automated underwriting system” and “a source of leads for telephone-based sales and service centers where business may be completed,” said the report.

Technology is a key factor in driving direct life distribution, said Weatherhead. Customer analytics, Web-based insurance needs calculators and applications, automated assessment of individual risk factors and completion of business are functions contributing to the growth of direct channels.

The development of the direct nonlife insurance sector has raised overall awareness of direct distribution channels in Australia, said Weatherhead. As insurers explore the potential, they will bring change to the market in the next few years.

Australia’s nonlife insurance sector has recently seen the entrants of new noninsurance players, such as Australia Post, Virgin Money and supermarket Coles, to provide personal nonlife products. These new players are active in retail business with established networks in retail and financial services (BestWire, Sept. 23, 2009).

Progressive Direct Insurance Co., a unit of U.S.-based Progressive Corp., launched business for online-service motor insurance in Australia this year (BestWire, Jan. 26, 2010).

“Direct life insurance in Australia is growing relative to other sectors of the risk insurance market. We estimate that market share has increased by 0.7% over the past year,” said Rice Warner in the report.