In a Tria Investment Partners update to clients, NMG Consulting chief executive Mark Prichard said the fierce competition in the group insurance space “has turned out to be unsustainable”.
Rumblings about rising claims activity along with “increasing media advertising by law firms, soliciting actions from members for claims against their fund’s insurer” has been borne out by the poor financial results of the reinsurance sector.
Mr Prichard pointed to an annual study of the reinsurance industry conducted by NMG Consulting which “indicates the market’s view that pricing has been too low for some time”.
He also highlighted Reinsurance Group of America’s (RGA)’s recent losses in the Australian market.
RGA recently informed the US Securities and Exchange Commission it lost US$300 million in the Australian group life market in the three months to June this year.
“RGA’s experience is likely representative of conditions in the overall group market,” said Mr Prichard.
“Their loss announcement implies that the pricing and design of underlying terms and conditions in insurance contracts are unsustainable,” he said.
As a result, there are likely to be “significant changes in terms as well as pricing” in the group insurance market, which could lead to a “competitive rebalancing in super”, said Mr Prichard.
“[Retail super funds], which have generally been less affected than the not-for-profits, will see their competitive position improve,” he said.
“Industry funds on the other hand may need to revisit their approach to group negotiations of cutting prices and watering down terms,” said Mr Prichard.
Whether or not the the 30 to 50 per cent increases in premiums over the last 12 months will turn out to be sufficient remains to be seen, he said.
“It is quite possible that, as large as the recent increases have been, this may be just the first round,” said Mr Prichard.
NMG Consulting is an insurance consulting company which merged with Tria Investment Partners in March this year.
