"The sector faces a difficult operating environment with results strongly linked to the investment markets. Without a strong improvement in investment conditions, the life industry will be challenged to produce strong and sustainable earnings," Moody's says in a new report.
The report, entitled Australian Life Insurance Industry Outlook: Challenges Ahead as Earnings Remain Dependent on Better Investment Performance was authored by Donovan North, a Moody's Assistant Vice President and Analyst.
"Long-term prospects in the superannuation market are good, but the life industry will face competition from other financial institutions," North notes in the new report.
The report goes on to comment that the mature and evolving state of the Australian market means the emergence of challenges determined by the sophistication of customer needs, the presence of financial planners and the introduction of new products.
Such challenges usually assume the form of low margins and strong competition and arise from issues not usually apparent in less developed insurance markets.
"Successful companies will display strategies that clearly identify their position along Australia's wealth management value chain," he says.
"Life insurers face various challenges, including the issue of achieving stronger growth and differentiation from their peers. Further consolidation is expected as smaller companies fall away," North adds.
The report adds that insurers will look to increased efficiency and above-average investment performance and service levels in order to differentiate themselves from their competitors.
"The regulator, APRA, will continue to play an increasingly important role in monitoring the financial health of the life insurance industry in Australia's supportive environment," North states, and expects that future regulatory focus will look at the sales practices of Australia's financial advisers.
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