2001 competitive year for insurers

Competition increased, with the arrival of aggressive new players such as Club Life, several existing insurers risked customer ire by raising health and disability premiums, and some commissions rose as firms went all out to win business from advisers.

AXA marketing general manager Julian Moore sums up the year like this: "The market became increasingly competitive with the major players looking to protect market share against aggressive new players."

Among these recent arrivals is Club Life, set up in July by former Sovereign chief operating officer Naomi Ballantyne. It has already written $1 million of business.

Established players also stepped up their marketing activities, particularly Lumley Life and Tower Health. Meanwhile, ASB Bank employed a dozen insurance managers to help expand sales of its general and life insurance products.
AXA did its bit to grab advisers’ attention by lifting commission rates by a third. However, Sovereign’s new adviser agreement had some advisers complaining the insurer was trying to be too controlling.

Overall, commissions paid to advisers rose more than 10% during the year to September.

Efforts by Tower, Sovereign and others to win a bigger slice of the health insurance market prompted market heavyweight Southern Cross to abandon its policy of using employees to sell its products. It now plans to also sell through independent advisers.

It was a tough year for Southern Cross, which is attempting to rein in spiraling medical costs, and just this week had to publicly apologise to customers for refund delays caused by a new computer system.

The insurer had one big win though, when the High Court gave it the thumbs up to buy all of Aetna Health.

Southern Cross, Tower and Sovereign all announced rises in health insurance premiums due to higher medical costs.

Disability insurance also remains unprofitable for many insurers, with the duration of claims lasting longer than expected. As a result, disability insurance accounted for 5% of all life and disability insurance payouts in the September year, up from 4% a year earlier.

The rises forced insurers such as Sovereign to announce premium hikes of up to 25%.

Overall, revenue earned by life and disability insurers was flat, with annual premium income in-force up just 2% in the September year.

Brokers say one firm achieving better than average growth is AIA, though its rapid growth has stretched backroom operations meaning policies sometimes take a while to issue.

The year brought different challenges for the big players. Sovereign spent it consolidating its transformation into the largest life insurer in the country. AMP’s big move was to sell its general insurance business to Royal & SunAlliance. Meanwhile, RSA had its credit rating cut by ratings agency Standard and Poor's after a return of capital by its parent.

However, the agency says the insurance industry remains on a solid footing despite record losses suffered from September’s terrorist attacks in the United States. It retains the backing of European and US reinsurance giants, and is proving a magnet for new investment, the agency says.

It predicts a profitable year in 2002.

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