2 The life insurance industry

The life insurance industry is now a significant part of the Australian economy. In the year ending 31 March 2018, life insurers in Australia earned over $18 billion in direct premiums from consumers.[1] At that time, the value of total assets held by life insurance companies in Australia was over $230 billion.[2]

Four main types of life insurance cover are sold in Australia:[3]

  • life cover, which pays a benefit on the death of a policyholder;
  • total and permanent disability (TPD) cover, which pays a lump sum to assist with rehabilitation and living costs if the policyholder becomes totally and permanently disabled;
  • income protection cover, which replaces income lost by the policyholder through their inability to work due to injury or sickness; and
  • trauma cover, which provides cover to the policyholder if they are diagnosed with a specified illness or injury.

These types of cover are sold in three main ways:

  • direct sales – an insurer sells a life insurance product directly to the consumer without any personal financial product advice;
  • retail sales – a financial adviser sells a life insurance product to the consumer; and
  • group sales – the trustee of a superannuation fund, or an employer, purchases a group policy under which the fund members or employees have the benefit of cover.

It is useful to analyse the three ways in which life insurance cover is sold by reference to the number of policies sold and the premiums paid for policies sold. In the 2017 calendar year, 84% of policies were sold through the retail channel, 15% were sold through the direct channel, and only 1% were sold through the group channel.[4] Of the premiums paid, however, retail sales represented 55%, group sales represented 40%, and direct sales represented only 5%.[5]

The figures quoted in respect of group sales record policies sold to superannuation trustees. When one looks instead at the number of insurance policies held within superannuation funds, it becomes clear that the majority of life insurance policies on issue in Australia are held through superannuation funds.[6] I will say more about this in the final section of this chapter.

The life insurance industry has been undergoing, and continues to undergo, substantial change:

  • In March 2016, Zurich Australia announced that it had entered into an agreement to acquire Macquarie Life’s life insurance business.[7]
  • In October 2016, NAB announced that it had completed the sale of approximately 80% of its life insurance business to Nippon Life Insurance Company.[8] In May 2018, NAB announced that it would divest its ownership of MLC, including the remaining 20% stake in its life insurance business. This process is expected to be completed by the end of 2019.[9]
  • In September 2017, CBA announced the sale of its life insurance businesses in Australia (CMLA) and New Zealand (Sovereign) to AIA Group. On 2 July 2018, CBA announced the completion of the sale of Sovereign to AIA.[10] The sale of CMLA to AIA is still pending regulatory approvals, and is now expected to be completed in the first half of 2019.[11]
  • In December 2017, ANZ announced the sale of its life insurance business, OnePath Life, to Zurich Financial Services Australia.[12]
  • In August 2018, Suncorp announced that it had entered into non-binding Heads of Agreement to sell its Australian life insurance business to TAL Dai-ichi Life Australia. Completion was expected to occur by the end of 2018.[13]

These divestments are expected to lead to a consolidation in the Australian life insurance market, in circumstances where TAL and AIA are already signficant players in that market.[14]

[1]Background Paper No 26, 15 [4].

[2]Background Paper No 26, 15 [4].

[3]Background Paper No 29, 1 [1.2].

[4]Exhibit 6.1, Undated, How Do Australians Buy Life Insurance.

[5]Exhibit 6.2, Undated, Chart of Premiums from Sales of New Policies by Channel.

[6]Peter Kell, ‘Insurance in Super: The RegulatorsWhat Do They Think?’ (Speech delivered at the Association of Superannuation Funds of Australia Spotlight on Insurance, Sydney, Australia, 27February 2018).

[7]Zurich, ‘Zurich Enters Agreement to Acquire Macquarie Life Insurance Business’ (Media Release, 4 March 2016).

[8]NAB, ‘NAB Completes Sale of 80% of Life Insurance Business’ (Media Release, 3 October 2016). See also Exhibit 6.13, Witness statement of Sean McCormack, 21 August 2018, 3 [16].

[9]Stephen Letts, ‘National Australia Bank to Sell MLC as Another Bank Flees Wealth Management’ (Media Release, 3 May 2018).

[10]CBA, ‘Completion of New Zealand Life Insurance Divestment’ (Media Release, 2 July 2018).

[11]CBA, ‘Update on Life Insurance Divestments’ (Media Release, 23 October 2018).

[12]ANZ, ‘ANZ Completes Simplification of Wealth Australia’ (Media Release, 12 December 2017).

[13]Suncorp, ‘Heads of Agreement to Sell Australian Life Insurance Business’ (Media Release, 9 August 2018); TAL, ‘TAL and Suncorp Finalise Binding Legal Agreement for the Acquisition of Suncorp’s Australian Life Insurance Business’ (Media Release, 4 September 2018).

[14]In the 2017 calendar year, prior to completion of the Suncorp and CBA divestments, TAL and AIA were the largest insurers by premiums paid by reference to life insurance policies in force, receiving approximately 17.4% and 16.7% of those premiums, respectively: Exhibit 6.3, Undated, Chart of Premium Income from Policies in Force. TAL and AIA also had the highest number of new policies during this period: Exhibit 6.5, Undated, Chart of Market Share of New Policies Sold, by Number of Policies.