Compounding Life Insurance market, New Zealand: Ken Research

Ken Research announced recent publication on, “Life Insurance in New Zealand, Key Trends and Opportunities to 2020“. This report provides a detailed outlook by product category for the New Zealand life insurance segment, and a comparison of the New Zealand insurance industry with its regional counterparts. It provides key performance indicators such as written premium, incurred loss, commissions and expenses, total assets and total investment income during the review period (2011-2015) and forecast period (2015-2020). The report also analyses distribution channels operating in the segment, gives a comprehensive overview of the New Zealand economy and demographics, and provides detailed information on the competitive landscape in the country. The report brings together research, modelling and analysis expertise, giving insurers access to information on segment dynamics and competitive advantages, and profiles of insurers operating in the country. The report also includes details of insurance regulations, and recent changes in the regulatory structure.

The New Zealand life insurance direct written premium increased at a review-period CAGR of 4.6%. New Zealand’s life insurance penetration stood at 0.74% of GDP in 2015, below the Organization for Economic Cooperation and Development average of 5%. Individual life insurance remained the largest sub-segment during the review period; it accounted for 92.8% of the segment’s direct written premium in 2015, of which the term life sub-category accounted for 68.7% of the category’s direct written premium. Financial advisers are the primary distribution channel for life insurance in New Zealand. New Zealand’s life insurance segment is highly competitive, with the presence of both domestic and foreign insurers.

The New Zealand life insurance market is characterised by sophisticated products, a lot of competition between providers, and high levels of consumer awareness and investor protection legislation
Over the last two years, there has been an increase in regulation in the life insurance space, for example to put the customer first and ensure relevant and suitable advice is being given
About 80% of distribution of life insurance products is done by IFAs, often with multiple-agency agreements across a number of providers
There is also a lot of demand from IFAs for product which they believe meets customers’ needs – leading o a lot of innovation

There has for a long time been a perception about the New Zealand life insurance market where someone could be a taxi driver one day and an insurance salesperson the next day. While the lack of regulation meant this was true to a certain extent, it is quite a sophisticated market, she explained. For instance, there are sophisticated products, a lot of competition between providers, and high levels of consumer awareness and investor protection legislation. As a result, there have not been horror stories of insurance companies going bankrupt or of cases of fraud. In the market today, for example, she said life-risk products are separate from investment products. This came about because consumers began to query the returns that they could see, and they could not see what they were paying for the life insurance component and where their savings or investment money was going.

Embryonic narrow environment

Over the last two years, there has been an increase in regulation in the life insurance space. This was a result of the performance in the investment markets, and of some of the bad practices in terms of investment advice, with life insurance being caught in the middle. The regulation has been a good thing for the industry overall, she said, as there is now a regulation which requires advisers to prove the advice they gave to customers, in order to put the customer first and ensure relevant and suitable advice is being given. This is creating a more robust life insurance market in New Zealand.

Distribution model for life insurance

In New Zealand, about 80% of distribution of life insurance products is done by independent financial advisers (IFAs), often with multiple-agency agreements across a number of providers. There is only a small number of tied agents, contrasting the common model in other parts of Asia. In the IFA space, there is a lot of pressure on commissions, so these tend to be high in the New Zealand market, she added. There is also a lot of demand from IFAs for product which they believe meets customers’ needs, said Ballantyne. This leads to a lot of innovation in the local market around trauma products, medical insurance and other products. Overall this makes New Zealand almost like a test-case for a lot of other insurance markets around the world – given the high levels of competition and sophistication, as well as there being early adopters of new products and developed distribution channels for delivering them to customers.

Topics Covered in The Report