Australian-based Harvest Partners carried out the survey of 12 New Zealand insurance companies and the resulting report says some hard decisions will have to be made.
There has been too much price competition in the industry, says Harvest partner Peter Ramjan.
The report says that "the writing is on the wall" for profitability in the disability income and trauma group of products.
There are signs the industry has already begun adjusting premiums in this area,.
More than two thirds of the 12 firms lifted their risk product premiums over the past year.
A clearer indication of the trend comes in the difference between the average premium of existing business and the average premium of new business. In 1999 the gap was only about $100: by last year it had grown to around $400.
The survey interviewed not only senior executives in the 12 companies but also managers in the claims, actuarial, product and underwriting areas.
A large number confirmed they are not meeting their profit criteria - 64% in the case if disability income, 32% in trauma insurance.
Broken down by segment, the senior executives tended to be more optimistic than other areas.
The actuaries were the most pessimistic - 45% expected a decrease in profitability. Again, disability income is the most problematic problem areas.
Managers were asked not only about their own firm but also how they viewed prospects for their main competitors, and the industry as a whole.
Overall, managers tended to believe their main competitors are performing better than the industry as a whole.
The main causes for lack of profitability are too low a price, the high cost of distribution, and too wide definitions. Nearly 40% of the firms have changed definitions over the past year, and Ramjan suggests that more will have to do so.
Most managers also believe that there will be a major market rationalisation over the next five years. Most senior managers believe there will be only six to ten firms operating in New Zealand by 2008.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues. Special Offers © Copyright 1997-2024 Tarawera Publishing Ltd. All Rights Reserved
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