Australia is the world’s largest reinsurance market for group business, but doubts are being raised about its sustainability due to cost-cutting to win tenders.
NMG Consulting chief executive Mark Prichard said $2 billion of additional premiums had been paid compared to five years ago, however, NMG’s survey of insurance executives showed them to be uneasy about the sustainability of their businesses.
NMG Consulting’s annual study of more than 1,000 insurance executives globally showed Australia had the most attractive outlook for benefit improvements for employees and scheme members of any large group market.
However, the same study showed that, over the past two years, Australian insurance executives’ views of pricing adequacy for the group segment (and large group schemes in particular) showed significant and growing concerns about the sustainability of current pricing.
“In recent times, lowest pricing has been a dominant feature in tender successes, but looking forward the success drivers will more likely emerge from innovation, partnership and capability differentiation.”
In the push to win tenders from super funds, some insurers had discounted premiums, and executives were concerned about those “unhealthy” low rates of profit “compared with other markets”, he said.
In future, business would have to be won through innovation rather than price cuts, he said at the AIA Australia Group Insurance Summit held in Sydney.
“Not every insurer can build new systems and there will be some winners and some losers, and increasing specialisation,” he said.
“There is an opportunity for insurers to deepen their expertise in disability,” he said, a point which was echoed by others on the panel.
AIA Group regional director Arthur Koo said the feature missing from Australian group insurance through super funds was a wider range of products, for example, in long-term care for disabled people.
“The product menu is limited, but Australia is the most advanced in partnerships in Asia,” Koo said.
RGA Reinsurance Company managing director Pauline Blight-Johnston warned that insurance was essentially benefits for people “when they are in a bad place, in unforeseen drastic need”.
Blight-Johnston was concerned that “as we push the envelope to add other benefits”, the cost of premiums would increase and that would push members away.
Swiss Re head of life and health client markets Helen Troup said one of the group insurance industry’s recent strengths was its “creativity in working closely with funds”.
“If we get this wrong, it will do so much damage to our reputations,” Troup said.
“Funds are for the members’ interests and they have that more at heart than some insurers.”
