Life insurance is scaring Australia's financial services firms right now

Photo by Kevin Frayer/Getty Images

If there is one business Australian banks and insurers fear right now, it’s life insurance.

Companies have struggled with the claim blowouts over the last few years and some long-standing players, including National Australia Bank’s MLC, have opted to exit the sector. The latest to look at its options is insurer and regional bank Suncorp.

Suncorp, after posting a net profit of $537 million for the six months ended December 31, compared with $530 million a year earlier, today said it is “exploring strategic alternatives” for its life insurance business to “maximise shareholder value.” The options for the life insurance division could include a sale or partnership arrangement, but no process has been started as yet.

Suncorp Life saw a 52% drop in net profit after tax to $11 million. Australian Life Insurance was impacted by an industry deterioration in lapse and claims trends, and will
continue to hurt, the firm said.

Suncorp is not alone. The sudden collapse of what AMP calls wealth protection, essentially life insurance, is behind the full year loss posted on Thursday.

National Australia Bank sold 80% of its life insurance business to Japan’s Nippon Life Insurance Co. and ANZ Bank is also considering a sale of its wealth and life insurance business. A review by ANZ last year concluded the bank need not originate of Life and Investments products and can instead just distribute such products.

This previously lucrative side of financial services is now a minefield because some of the the underlying assumptions for the calculations have suddenly changed.

A rise in claims for depression-related illnesses, more payouts for workers compensation, an ageing customer base and better science to diagnose illnesses earlier and with more precision are among those factors.

Statistics compiled by APRA (Australian Prudential Regulation Authority) shows a steady decline in life insurance premiums over the last few years.

Revenue has been falling and costs rising, as this chart shows:

Source: APRA

Total industry premiums in the September quarter were $11.406 billion, down 13% over 12 months from $13.123 billion, as an ageing customer base also means more and more people no longer see value in their increasingly expensive policies and decline to renew them.

While Suncorp’s life insurance premiums in 2016 climbed 0.4% to $801 million, total new business dropped 13% to $33 million, the company said.

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