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Insurance: Pressure likely to come on some products this year

American International general manager David Whyte suggests that survival and sustainability will be tough for some companies and types of insurance policies this year.

Thursday, February 1st 2001, 7:08AM

by David Whyte

As the real new millennium dawns, the challenges facing the risk management side of the financial services industry are as daunting as ever.

Looking forward, the issues which are likely to emerge relate to the market, the legislative and regulatory environment, and the prospects for survival, sustainability and success.

The Market
Investment Savings and Insurance Association (ISI) figures for December make it clear that some companies are recording solid growth, while others have negative growth compared with the previous year, while others appear to have stagnated in a year when the industry (excluding employee benefits) grew by 2%.

Market share will remain an issue for some, while others will focus on profitability. This latter issue will rear its head again this year for the majority of disability income products as claims experience fails to improve and prices again come under pressure.

Some of the research houses providing information to New Zealand advisers may finally begin to recognise price stability as a relevant item of data.

The reinsurers experience may not always directly mirror the individual client company's experience, but the trends are easily identifiable and inexorable.

Chasing market share in this product line may cause some insurers some grief.

Other product lines which may come under pressure in the short term relate to the group risk market. Silly pricing, buying market share etc, are characteristics of an immature market and will likely to lead to losses, however creatively the figures are analysed.

The market conditions may be distorted by such practices in the short term, but shareholder pressure and more open accountability may eventually prevail.


Risk product providers operate against a hopelessly outdated legislative framework. The 1908 Act, and its 1977 amendments bear no relation to modern market practice, and the continued existence of these antiques does nothing to facilitate the evolution and progress of the industry.

Despite mixed messages, it is to be hoped the legislative environment comes under close, formal and urgent review. Compliance with new financial reporting standards will also be an issue to those companies who have not yet embraced the new format contained.

Consistency of financial reporting is an objective long overdue in the market and any measure which encourages this should be welcomed.

In more general terms, the prospect of life companies being treated in the same manner as any other trading organisation, and therefore subject to the 1993 Companies Act seem regrettably remote.

Will the current tax regime of I -E survive? Who knows?

Amendments to the Securities Regulations are being drafted, and final recommendations will be made to Government by August this year.

This may be a year when vigilance is required. While nowhere near the stifling environments of Britain and Australia, it is important that trade association within the financial services industry are alert to creeping regulatory measures, which, on their own may not seem significant. But when aggregated represent a growing raft of red tape and bureaucratic intervention.

Survival, Sustainability and Success
Some would contend that there are still too many players seeking to achieve the same market share from too few consumers, private and corporate. Looking at the statistics, it is difficult to refute this view entirely.

The Securities Commission's update bulletin in January 2001 indicated that the value of total funds in life insurance products actually declined by 0.1% in the quarter ending September 2000. Not a healthy trend if repeated on an annual basis, and some overseas operators must be reviewing the returns and value of maintaining a presence in New Zealand.

Similarly, while survival may be an issue for some, product sustainability may be an issue for others. Disability income products have been mentioned already, but look for some concerns being voiced regarding Critical Illness claims, particularly the unexpected level of breast cancer claims.

Likewise, medical insurance products of all descriptions are under pressure. This is likely to continue throughout 2001.

Success will favour the prudent in 2001. Overseas, the impact of cavalier actuarial and marketing positions have already adversely impacted on Britain's oldest mutual, Equitable Life (no relation to Equitable in NZ). Offering guaranteed annuity rates in a period of higher inflation, the company was unable to remove itself from the liabilities which could not be met, and negotiations are currently under way to find a buyer.

The policyholders remain exposed. No New Zealand risk product provider is in this position meantime, but mandatory rating by an approved agency would provide consumers with an easily understood benchmark.

The industry will remain very competitive, and tight profit margins will continue to be the norm. Rationalisation may well continue, and a few new entrants will back themselves to shake up the status quo, and add some more competition to the marketplace.

Whether there is enough to sustain these players is a matter to be reviewed this time next year.

David Whyte is general manager of American International Assurance.

David Whyte was the general manager of AIA New Zealand and chief executive of the Ginger group. He know runs DCW Consulting.

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Lender Flt 1yr 2yr 3yr
ANZ 5.79 5.05 ▼5.19 ▼5.49
ANZ Special - 4.55 ▼4.69 4.99
ASB Bank 5.80 4.75 4.99 5.29
ASB Bank Special - 4.45 4.69 4.99
BNZ - Mortgage One 6.50 - - -
BNZ - Rapid Repay 5.95 - - -
BNZ - Special - 4.59 ▲4.75 5.09
BNZ - Std, FlyBuys 5.90 4.99 5.29 5.59
BNZ - TotalMoney 5.90 - - -
Credit Union Auckland 6.70 - - -
Credit Union Baywide 6.15 5.45 5.50 -
Lender Flt 1yr 2yr 3yr
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 5.00 5.20 -
Housing NZ Corp 5.79 ▼4.75 ▼4.99 ▼5.29
HSBC Premier 5.79 4.09 4.29 4.89
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
Lender Flt 1yr 2yr 3yr
ICBC 5.80 4.59 4.69 5.09
Kiwibank 5.80 4.95 5.15 5.59
Kiwibank - Capped - - - -
Kiwibank - Offset 5.80 - - -
Kiwibank Special - 4.55 4.65 5.09
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 6.10 5.10 5.45 -
Resimac 5.30 4.86 4.94 5.30
RESIMAC Special 5.00 - 4.75 -
SBS Bank 5.89 4.99 ▼5.19 5.59
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 4.59 ▼4.69 5.25
Sovereign 5.90 4.75 4.99 5.29
Sovereign Special - 4.45 4.69 4.99
The Co-operative Bank - Owner Occ 5.75 4.55 ▼4.69 ▼4.99
The Co-operative Bank - Standard 5.75 5.05 ▼5.19 ▼5.49
TSB Bank 5.80 4.80 5.15 5.45
TSB Special - 4.55 4.69 4.99
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.95 4.99 5.19 5.59
Westpac - Capped rates - 5.26 5.36 -
Westpac - Offset 5.95 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 4.59 4.74 5.09
Median 5.82 4.78 4.99 5.29

Last updated: 20 September 2017 10:08am

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