The move to sum insured is taking a bite out of the life insurance sector, according to leading wealth management and insurance provider AMP Financial Services, as people prioritise the risk to their possessions over personal risk.
While it is recognised in the industry that over 90% of people will insure their car and home, with the figures being much less for life (around 57%) and income protection (roughly 20%), a concern for life insurers is that those figures will drop even more as the rising insurance costs triggered by sum insured policies kick in further.
Speaking on the back of their first half earnings announcement, AMP New Zealand managing director Jack Regan says life insurance annual premium income had been flat over the half, which was in line with much of the industry.
He told Insurance Business: “From a household perspective there’s a lot of pressure out there, people are seeing hikes in other insurance products like health and general and that’s a significant issue.”
He said that impending taxation on life insurance businesses was also a concern as the cost would eventually end up on premiums.
“We’re trying to manage the impact of life tax by being incremental with life tax increases, noting that we haven’t increased prices this year, where most of the others have.”
A company spokesperson said premiums would inevitably increase in the future but the business aimed to grow its revenue base, reduce overall costs and evolve distribution channels to reduce the capital impacts of distributing life insurance.
AMP said in a statement: “The cost efficiencies delivered are allowing us to minimise the impact of price increases for life insurance that are expected ahead of the changes to taxation of life insurance in July 2015 and to pass on lower fees to our KiwiSaver customers.
Regan said: "We are continuing to invest in the future of the business with an ongoing focus on maximising cost efficiencies, evolving distribution capability and delivering product and market innovation. We are also looking at further rationalisation of duplicate wealth management product sets, leading to reduced expenditure on legacy IT systems.
"Additionally, the simplification of business processes is ongoing with the aim of delivering a first class experience to customers and their advisers at a reduced cost," he said.
Meanwhile, the company announced operating earnings of $59.4 million for the half year to 30 June 2014, an increase of 5% from the same time last year which has been driven by increasing profit margins.
Profit margins for the half year were $60 million, an uplift of 8% for the first half on 1H 13, primarily driven by a reduction in controllable costs and an increase in assets under management (AUM).
Net cashflows grew significantly from $4m in 1H13 to $202m in 1H14 bolstered by favourable KiwiSaver cashflows and the transfer of new advisers and their clients on to the AMP financial services platforms.
Experience losses for 1H14 were $0.5m reflecting higher than expected Lump Sum claims.
