In its latest direct insurance market analysis, the research group projected direct sales of lump sum and income protection insurance to “grow substantially” by 2018 to reach $719 million per annum combined, up from just under $500 million now.
In-force business is also expected to grow from around $1,204 million to reach $2,514 million by 2018, but these growth rates are not as impressive as they sound due to high lapse rates, Plan For Life stated.
A large amount of in-force and new business gets “lost along the way through substantial lapses”, the firm said.
“Based on sample lump sum sales data collected from companies selling both direct and adviser-based insurance, on average, lapses arising from adviser-based sales in the first 12 months are running at fairly low levels, with an average of 8.4 per cent lapsing in year one,” the report said.
However, a “fairly large sample” of direct risk insurance showed an average of 39 per cent exiting in the first year, the report found.
In both cases the averages don’t tell the full story, with a wide range being found across the market, the firm stated.
“Nonetheless, as one would probably expect, direct sales are much harder to retain than adviser-based business,” Plan For Life said.
However, this turned around somewhat in the second year, with adviser-based business experiencing a higher lapse rate of 13.5 per cent, which Plan For Life said is likely to be due to a combination of annual cases lapsing just after the first renewal date and cases with other frequencies also exiting at a fairly high rate.
Meanwhile, for direct insurance there was a huge drop down to around 13 per cent, which is just one third of first-year lapse rates and slightly lower than the second-year lapse rates for adviser-sold business.
