Retail life insurance may not be the commercial panacea some financial planners believe, according to new analysis released by Tria Investment Partners.
The analysis, released this week, notes that while insurance has been seen as something of a "growth saviour", everything is not as it seems.
The Tria analysis said most retail life insurers were seeing negative net "flows", and that premiums attributed to policies which lapsed or were cancelled were exceeding the premiums attributed to new policy sales.
"The retail advised segment as a whole was in net outflow in full-year 2012, with the situation likely to be exacerbated in 2013," the Tria analysis said.
It said that with respect to the question of whether the retail life segment was growing, the answer was both "yes" and "no" in circumstances where life insurance premium growth was a function of a combination of factors:
- CPI inflation: benefits and premiums on inforce policies increase by an amount each year (typically 2-5 per cent per annum).
- Ageing: premiums on in-force policies step up each year, as the insured gets older.
- New business sales: new policies sold each year add to the total number of policies and premiums.
- Policy lapses: equally, each year some in-force policies lapse, reducing the number of policies and premiums.
The analysis said that in 2012 the net of retail new business sales less policy lapses was (substantially) negative.
"What saved the situation was the combined effect of CPI and age-related increases on existing in-force policies, delivering overall positive growth of around 8 per cent," it said.
"So yes — total premiums in retail advised are growing, but only by extracting premium increases from a largely static policy-holder base."
Looking at whether growth was likely to improve, the Tria analysis said that the past growth of 8 to 9 per cent in retail advised premiums had been mainly driven by the ageing of the population, with more people in older demographics remaining employed (and in debt) for longer and continuing to pay premiums.
"So where are the growth opportunities? The real opportunity is in areas of genuine under-insurance — notably in developing products relevant to the fast-growing, increasingly wealthy older demographics," it said.
