Deloitte issues paper: The New Zealand life insurance sector
Key insights, trends and analyses on the RBNZ Bulletin Vol. 83, No. 1
Following the release of the RBNZ Bulletin Vol. 83, No.1 in January, which examined the New Zealand life insurance sector, Deloitte was commissioned by Partners Life to produce an issues paper exploring observations made in the bulletin. The RBNZ provided commentary around the profitability of New Zealand’s life insurers, the value for money of life insurance, and life insurers’ ability to meet minimum capital requirements.
The intention of this Deloitte paper is to support informed conversations and promote further discussion within the industry, ultimately ensuring sustainable and customer-focused outcomes.
The life insurance industry in New Zealand includes a number of features that differentiate it from other countries. As a result, it can be very difficult to compare sector efficiency, profitability and capital adequacy with other countries based only on high level metrics. We observe that:
- Markets which are dominated by risk-only products, such as New Zealand, tend to exhibit lower claim ratios when compared with markets where insurers sell a significant amount of savings type products, such as Europe;
- The size of the New Zealand market is small relative to other countries. As a result, there is a lack of scale in New Zealand that exists overseas with regard to operating expenses;
- Comparisons of commission levels across markets need to take account of the difference in distribution models. A significant portion of life insurance in Australia, for example, is distributed through mandated default insurance under group schemes attached to superannuation whereas, in New Zealand, adviser distribution is more dominant;
- It is important to consider the trade-offs involved in using reinsurance as an alternative to holding solvency capital; and
- With high public awareness of support through ACC, KiwiSaver and NZ Super, the perception that support will be provided by the Government may lead to complacency and a degree of underinsurance.
Our paper also notes that a focus on customers (policyholders) is key to future profitability and reputational success. To achieve a sustainable life insurance industry which has the end consumer’s interests as its primary concern, insurers and regulators need to consider all factors from a solvency, sustainability and suitability of coverage perspective.
An appropriate solvency standard is key to ensuring a sustainable life insurance industry for New Zealanders. Above all else, it’s important to strike a balance between providing stability and confidence in the sector without imposing a strain on the industry through unnecessarily high capital requirements, discouraging investment in growth and innovation.
Media statement: The New Zealand life insurance sectoropen in new window Read our media statement