A new study finds that underwriters must differentiate themselves clearly and innovate on the product front if they’re to withstand increased competition. SAM RILEY reports.Fierce competition within the group risk insurance market for a shrinking number of fund mandates will continue to intensify, leading to further consolidation of insurers and product innovation, a report by Melbourne-based IFS Insurance Broking (IFSIB) predicts. The insurance broker and consultant finds that while group risk insurance annual premium flows will continue to increase, on the back of growth in the superannuation industry, consolidation among superannuation funds will reduce the number of mandates. “The outlook for this segment of the market is not expected to change in the short to medium term and, in fact, could lead to a prolonged period of fierce competition,” the report, Group Risk Insurance – Battlelines Changing, says.

“Such market conditions should result in differentiation and innovation by insurers in order to withstand these prolonged conditions. As the group risk insurance market is likely to remain competitive, there is likely to be some potential for M&A activity as larger insurance companies seek to grow their portfolio by non-organic means.” The increased competition is also likely to encourage more new entrants to the group risk market from the general insurance industry. The authors of the report say these general insurance players will be keen to gain access to superannuation mandates in the form of income protection insurance. Superannuation business now dominates the Australian group risk market, accounting for 88 per cent of the $3.25 billion of total annual premiums as of December 31, 2010.

IFSIB, which specialises in providing consultancy services to industry super funds, says that over the past four years the superannuation sector of the group risk market has increased by more than 100 per cent, from $1.43 billion in 2006 to $2.87 billion in 2010. Over the same period the growth in ordinary insurance has remained stagnant, falling from 19 per cent of the overall market share to 12 per cent. The overall market has grown strongly on the back of the flow of premiums from the superannuation sector, growing at 20 per cent or more annually for three of the past four years. The report shows the biggest four insurers – AIA, Tower, Comminsure and Onepath – have further consolidated their dominant market positions, and between them now account for 60.88 per cent of the Australian group risk market. In four years these insurers have also grown their combined annual premiums by almost $1 billion. As of December 31, 2010 these four insurers wrote $1.98 billion in annual premiums between them.

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