Insurance in Australia
Australia's insurance market can be divided into roughly three components: life insurance, general insurance and health insurance. These markets are fairly distinct, with most larger insurers focusing on only one type, although in recent times several of these companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates. With services such as disability insurance, income protection and even funeral insurance, these insurance giants are stepping in to fill the gap where people may have otherwise been in need of a personal or signature loan from their financial institution.
There are apparently many companies offering insurance policies in the Australian market, but many are in fact underwritten by a limited number of insurers operating under various brand names. There are a number of large companies that present themselves as providers of insurance or financial services, such as Coles, Woolworths, Australia Post, Myer, RACV, NRMA, among others, but which actually only sell insurance products of other companies under its brand name. Such companies at times describe themselves as insurance companies or as providers of financial services, but are better described as insurance retailers or insurance distributors. Such companies are generally not exposed to any insurance risks, but receive a commission (generally 10-20%) on the sale of these insurance products.
Behind this apparent array of insurance providers and products, there are only a small number of companies that actually provide insurance, sometimes referred to as underwriters, some of which offer insurance products directly to the public. Four companies account for three-quarters of the general insurance market. They are Insurance Australia Group (IAG) with 29% of the market, Suncorp Group with 27%, QBE with 10%, Allianz with 8%.
Some general insurance is provided by government schemes or government insurers. Compulsory third party (CTP) motor insurance, worker's compensation, disability cover, and health cover may be covered by government schemes or insurers depending on the state of residence and insurance required.
Types of insurance
Life insurance products sold in Australia include term life insurance and disability income insurance. Australian insurers are unusual in providing lump sum total and permanent disability insurance and trauma (critical illness) insurance. Life insurers also sell superannuation investment products. Most life and related insurance is taken out through superannuation funds. Life insurance premiums paid by a superannuation fund are tax-deductible by the fund from assessable income; while the same premium if paid directly by the individual member may not be tax deductible.
Some insurance companies also offer funeral insurance, accidental death and accidental injury policies. ASIC recently questioned the value of some of these policies and the methods used to sell them.
The market for life insurance in Australia is worth about $44 billion.
Life insurance in Australia is sold through intermediaries (such as brokers) as well as directly by the insurer to the public. ASIC and the Hayne Royal Commission have highlighted the high pressure telephone selling practices and poor product design of some direct life insurance companies.
The Australian Prudential Regulation Authority (APRA) regulates life insurance companies registered under the Life Insurance Act in Australia. As at 30 June 2018, there were 30 life insurers being monitored by APRA.
The largest 10 life insurance companies (by total risk premium inflows in the 12 months to 30 September 2018) accounted for 95.5% of the Australian market. These companies are (market share shown in brackets):
- TAL Life (17.8%) owned by Japanese insurer Dai-ichi Life
- AIA Australia (15.6%) owned by Hong Kong based AIA Group
- MLC Life (11.7%) owned 20% by National Australia Bank and 80% by Japanese insurer Nippon Life
- AMP Life including the National Mutual Life Assurance Society (11.0%) owned by the global Resolution Life Group
- OnePath Life (10.0%) owned by ANZ Bank New Zealand
- CommInsure trading name for The Colonial Mutual Life Assurance Society (7.9%) owned by Commonwealth Bank
- Westpac Life including BT Life (7.8%) owned by Westpac
- Suncorp Life including Asteron Life (5.0%) owned by Suncorp Group
- MetLife Insurance (4.5%) owned by US insurer MetLife Inc
- Zurich Australia (4.2%) owned by Swiss insurer Zurich Insurance Group
Between 2015 and 2018 five Australian banks have announced their intention to divest their life insurance operations: NAB (sale of 80% of MLC Life to Nippon Life), Macquarie Bank (sale of Macquarie Life to Zurich), CBA (sale of CommInsure to AIA), ANZ (sale of OnePath Life to Zurich) and Suncorp (sale of Suncorp/Asteron Life to TAL). In 2019, when the last of these deals is completed over 60% of the Australian life insurance market will be controlled by three companies - AIA, TAL and Zurich.
General insurance products sold in the Australian market can roughly be divided into two classes:
- Liability insurance such as compulsory third party (CTP) motor insurance, worker's compensation, professional indemnity insurance and public liability insurance, business insurance;
- Property insurance such as home and contents insurance, travel insurance, and comprehensive motor vehicle insurance
Provisions applying to statutorily mandated or regulated schemes, such as CTP and workers’ compensation, may differ considerably between states.
Many of Australia's largest companies and governments self-insure partially or totally. There are dedicated government insurers who cover these functions in many states.
Large general insurer groups include:
- Insurance Australia Group (IAG) markets its products under brands including NRMA, RACV, CGU, SGIO, and Buzz.
- Suncorp markets its products under brands including AAMI, GIO, APIA, Just Car, Bingle, Vero, InsureMyRide, Shannons, CIL, and Terri Scheer.
- QBE Insurance
- Youi Insurance, which is owned by African company OUTsurance Holdings, underwrites its own policies and markets only under Youi Insurance.
- Auto & General markets its products under brands including Budget Direct, Australia Post, Virgin Money and they underwrite home and car insurance from 1Cover. It is part of the international BHL Group with headquarters in South Africa.
- Allianz Australia (brands include: Club Marine and Hunter Premium Funding, and they underwrite travel insurance from 1Cover)
- Hollard Insurance, markets its policies through a number of brands including Real Insurance, and Guardian. It also sells policies through agents such as Woolworths, Australian Seniors Insurance, Medibank, and others.
Previous general insurers include:
- Promina Group merged with Suncorp in 2007
- SGIO and SGIC purchased by IAG
- HIH Insurance collapsed in 2001
- MMI taken over by Allianz in 1998.
Individuals and families can take out additional health insurance for services not covered by Medicare or for services provided in private hospitals. The Australian taxation system penalises higher income earners who do not take out private health insurance, with a Medicare Levy Surcharge of 1% to 1.5% being payable by those who do not take out private health insurance.
Regulated by the Australian Prudential Regulation Authority (APRA) under the Commonwealth Insurance Act 1973. The Australian Government website Smartraveller recommends "Take out comprehensive travel insurance and ensure it covers you for the places you'll visit, things you'll do and any pre-existing conditions."
Current travel insurance companies include:
- Good2Go Travel Insurance
- Budget Direct
- Fast Cover
- Real Insurance
- Travel Insurance Direct
Life insurers were traditionally mutual companies, but in the 1980s and 1990s many of them demutualised and, until recently, the majority were owned by banks. There are four main distribution channels for life insurance, including group insurance, bank insurance, IFAs and direct channels (mainly through TV).
General Insurers have a more diverse ownership structure, with more stand alone independent general insurers (although some life insurers do own general insurers).
Health insurers are still predominantly mutuals when considered by numbers. However, three of the four largest health funds (by premium written) are for profit, and represent around 60% of premium written (for the year to 30 June 2018). The largest private health fund by premium is Bupa, which is owned by Bupa UK, a not for profit entity. The next largest private health provider is Medibank Private, which was owned by the Government of Australia, but was privatised in 2014-15.
The prudential aspects of general, life and health insurance (solvency etc.) are regulated by the Australian Prudential Regulation Authority (APRA). Matters relating to advice or disclosure of insurance products sold are regulated by the Australian Securities and Investments Commission (ASIC). The Australian Competition and Consumer Commission (ACCC) also has a regulatory role with respect to competition law.
In certain states, various bodies also have powers in regulating certain types of statutory insurance. For example, in New South Wales the State Insurance Regulatory Authority regulates Compulsory Third Party motor liability insurance. In many cases these bodies have powers regarding premium rating and reinsurance rules.
The primary federal legislation is:
- Life Insurance Act 1995 (life insurance prudential regulation)
- Insurance Act 1973 (general insurance prudential regulation)
- Health Insurance Act 2007 (health insurance prudential regulation and consumer protection)
- Corporations Act 2001 ((especially Ch 7) consumer protection in respect of insurance policies)
- Insurance Contracts Act 1984 (consumer protection in respect of insurance policies)
Other legislation which affects the industry includes:
- A New Tax System (Goods and Services Tax) Act 1999 (taxation rules in respect to insurance e.g. Division 78)
- Privacy Act 1988 (The National Privacy Principles)
Further regulations include:
- The General Insurance Code of Practice which all general insurer signatories agree to self-regulate under.
- Payment Card Industry Data Security Standard (PCI DSS)
The main industry bodies are:
- Insurance Council of Australia which represents general insurers.
- Financial Services Council
- Australian and New Zealand Institute of Insurance and Finance
- Underwriting Agencies Council
- Institute of Actuaries of Australia
- ACORD (Association for Cooperative Operations Research and Development) is the global standards-setting body for the insurance and related financial services industries. ACORD has standards for both General Insurance and Life Insurance and has been working with the Australia and New Zealand insurance industry since 2007 to develop electronic messaging standards to support seamless information exchange between insurance business partners.
- Australasian Institute of Chartered Loss Adjusters (AICLA) which represents qualified loss adjusters
- Private Healthcare Australia
- Financial system in Australia
- Australian insurance law
- Margin on Services (accounting method for life insurance in Australia)
- Hayne Royal Commission
- Don't be fooled by the plethora of brands
- The New Daily, 12 September 2018, The hidden companies behind Woolworths and Coles insurance
- "CP 317 Unsolictied Telephone Sales of Direct Life Insurance and Consumer Credit Insurance".
- The Age, 15 September 2018, "Flogging of worthless life insurance policies laid bare"
- "ASIC and Royal Commission exposes direct life insurance deficiencies".
- "Life Insurance Institution-level Statistics".
- "Life Insurance Risk Market Inflows up 17 over the year from 162bn to 165bn".
- "Banks Vacate Life Insurance Market".
- "Hollard Insurance - Home". hollard.com.au. Retrieved 11 February 2014.
- "Life Insurance Australia" (PDF). Retrieved 3 August 2015.
- "Data is Good for Us". Retrieved 12 July 2018.