Life assurance firms ‘must get used to new landscape’

The life assurance market continues to operate at pre-crisis operational capacity and capability, which has led to increased competition in the sector.

Together with increased regulation, companies have to get used to a different landscape, said Mark Burke, head of life insurance supervision at the Central Bank.

Speaking at the Life & Pensions Industry — The Big Picture conference in Dublin yesterday, Mr Burke noted that the market had another very challenging year in 2012. New business volumes fell for the fifth consecutive year and new business underwritten was down 9%. Since the peak of the market, new business volumes are down between 60-70%. There is also growing market concentration, with the three largest industry players now accounting for all policies issued.

Profitability suffers from the relatively fixed cost base structure; reduced margins; higher compensation paid to intermediaries; and, a higher lapse/surrender rate across the market as a greater number of policies move between providers, said Mr Burke.

“The profitability of new business written in 2012, for the market as a whole, will be break even at best. This implies that some companies may see a positive return on their new business activities, while many others will see a negative return to varying degrees.”

Companies are tackling the problem through a reduction of internal costs, voluntary redundancy programmes and looking at commission competition. However, some firms may have to exit the market while there could be further consolidation, which would erode competition and consumer choice, he added.

“Greater alignment of interest, to the benefit of all stakeholders, could be achieved by longer commission clawback periods to reduce the risk of early surrender. It could be achieved by a commission structure which favours lower upfront payments for services rendered in return for commission which is earned more evenly throughout the policy term or it could be achieved by introduction of a time-based advisory fee disclosed to the consumer as we have seen in the UK.”