Insurance in Australia
insurance in australia .market can be divided into roughly three components: life insurance, general insurance, and health insurance. These markets are fairly distinct, with most larger insurers focusing on only one type, although in recent times several of these companies have broadened their scope into more general financial services, and have faced competition from banks and subsidiaries of foreign financial conglomerates. With services such as disability insurance, income protection, and even funeral insurance, these insurance giants are stepping in to fill the gap where people may have otherwise been in need of a personal or signature loan from their financial institution.
There are apparently many companies offering insurance policies in the Australian market, but many are in fact underwritten by a limited number of insurers operating under a large number of brand names. There are a number of large companies that present themselves as providers of insurance or financial services, such as Coles, Woolworths, Australia Post, Myer, RACV, NRMA, among others, but which actually only sell insurance products of other companies under its brand name. Such companies at times describe themselves as insurance companies or as providers of financial services, but are better described as insurance retailers or insurance brokers. Such companies are generally not exposed to any insurance risks, but receive a commission (generally 10-20%) on the sale of these insurance products.
Behind this apparent array of insurance providers and products, there are only a small number of companies that actually provide insurance, sometimes referred to as underwriters, some of which offer insurance products directly to the public. Four companies account for three-quarters of the general insurance market. They are Insurance Australia Group (IAG) with 29% of the market, Suncorp Group with 27%, QBE with 10%, Allianz with 8%. Other companies include Westpac, the Commonwealth Bank, Hollard Insurance and Auto & General.
Types of insurance
Life insurance products sold in Australia include term life insurance and disability income insurance. Australian insurers are unusual in providing lump sum total and permanent disability insurance. Life insurers also sell superannuation investment products. Most life and related insurance is taken out through superannuation funds. Life insurance premiums paid by a superannuation fund are tax deductible by the fund from assessable income; while the same premium if paid directly by the individual member may not be tax deductible. The value of some of these policies has been questioned, as have the methods used to sell policies.For example, most life policies in Australia are sold through superannuation funds, and on average a person is a member of four funds. As life insurance companies only pay out on one policy, the other policies are considered worthless or “junk”.
The market for life insurance in Australia is worth about $44 billion.
Some of the larger insurance providers also cover events such as funerals, accidental injury, accidental death, income protection, bill protection and key person insurance. Life insurance in Australia is sold through intermediaries (such as brokers) as well as directly by the insurer to the public.
Life insurance companies that operate in Australia include:
- AIA Australia, a subsidiary of Hong Kong based AIA Group, the largest public listed pan-Asian life insurance group.
- AAMI Life, a brand and subsidiary of Suncorp Group since 2007. Its headquarters are in Brisbane, Queensland.
- AMP Limited, a long-time Australian company, which has demutualised and now is listed on the Australia Stock Exchange and the New Zealand Stock Exchange. Since 30 March 2011, AXA Asia Pacific Holdings Limited and all of its Australian and New Zealand subsidiaries are part of the AMP Group; previously they were part of the global AXA Group.
- Asteron Life, a brand and subsidiary of Suncorp Group.
- NRMA Insurance, brand of the Insurance Australia Group.
- Allianz Australia, part of Allianz, the world’s largest insurance company, with headquarters in Munich, Germany.
- GIO Life
- MLC, a subsidiary of the National Australia Bank.
- Macquarie Life
- OnePath, a subsidiary of the ANZ Bank.
- Real Insurance, a brand and Australian representative of Hollard Group, a privately owned insurance group based in South Africa.
- TAL (previously Tower Australia), a subsidiary of Dai-ichi Life, with headquarters in Tokyo, Japan.
- Zurich Australia, part of Zurich Insurance Group, a global insurance company, with headquarters in Zürich, Switzerland.
In addition, life insurance is also sold by friendly societies, credit unions, health funds and large retailers such as Coles Supermarkets and Woolworths Limited.
General insurance products sold in the Australian market can roughly be divided into two classes:
- Liability insurance such as compulsory third party (CTP) motor insurance, worker’s compensation, professional indemnity insurance and public liability insurance, business insurance;
- Property insurance such as home and contents insurance, travel insurance, and comprehensive motor vehicle insurance
Provisions applying to statutorily mandated or regulated schemes, such as CTP and workers’ compensation, may differ considerably between states.
Large general insurer groups include:
- Insurance Australia Group (IAG) markets its products under brands including NRMA, RACV, CGU, SGIO, and Buzz.
- Suncorp markets its products under brands including AAMI, GIO, APIA, Just Car, Bingle, Vero, InsureMyRide, Shannons, CIL, and Terri Scheer.
- QBE Insurance
- Auto & General markets its products under brands including Budget Direct, Australia Post, Virgin Money, Compare the Market and they underwrite home and car insurance from 1Cover. It is part of the international BHL Group with headquarters in South Africa.
- Allianz Australia (brands include: Club Marine and Hunter Premium Funding, and they underwrite travel insurance from 1Cover)
- Hollard Insurance, markets its policies through a number of brands including Real Insurance, and Guardian. It also sells policies through agents such as Woolworths, Australian Seniors Insurance, Medibank, and others.
Previous general insurers include:
- Promina Group merged with Suncorp in 2007
- SGIO and SGIC purchased by IAG
- HIH Insurance collapsed in 2001
- MMI taken over by Allianz in 1998.
The Australian Government provides a basic universal health cover through the Medicare scheme. Medicare is funded by a 2% Medicare levy paid by most taxpayers.
Individuals and families can take out additional health insurance for services not covered by Medicare or for services provided in private hospitals. The Australian taxation system penalises higher income earners who do not take out private health insurance, with a Medicare Levy Surcharge of 1% to 1.5% being payable by those who do not take out private health insurance.
Life insurers were traditionally mutual companies, but in the 1980s and 1990s many of them demutualised and with a few large exceptions are owned by banks. The large remaining insurers have become “financial services” organisations and now derive the majority of their revenue from superannuation investment products. There are four main distribution channels for life insurance, including group insurance, bank insurance, IFAs and direct channels (mainly through TV).
General Insurers have a more diverse ownership structure, with more stand alone independent general insurers (although some life insurers do own general insurers).
Health insurers are still predominantly mutuals. The notable exception is Medibank Private, the largest private health insurer in Australia, which was owned by the Government of Australia, but was privatised in 2014-15.
The prudential aspects of general, life and health insurance (solvency etc.) are regulated by the Australian Prudential Regulation Authority (APRA). Matters relating to advice or disclosure of insurance products sold are regulated by the Australian Securities and Investments Commission (ASIC). The Australian Competition and Consumer Commission (ACCC) also has a regulatory role with respect to competition law.
In certain states, various bodies also have powers in regulating certain types of statutory insurance. For example, in New South Wales the Motor Accidents Authority regulates Compulsory Third Party motor liability insurance. In many cases these bodies have powers regarding premium rating and reinsurance rules.
The primary federal legislation is:
- Life Insurance Act 1995 (Life Insurance prudential regulation)
- Insurance Act 1973 (General Insurance prudential regulation)
- Health Insurance Act 2007 (Health insurance prudential regulation and consumer protection)
- Corporations Act 2001 ((especially Ch 7) consumer protection in respect of insurance policies)
- Insurance Contracts Act 1984 (consumer protection in respect of insurance policies)
Other legislation which affects the industry includes:
- A Nex Tax System (Goods and Services Tax) Act 1999 (Taxation rules in respect to insurance e.g. Division 78)
- Privacy Act 1988 (The National Privacy Principles)
Further regulations include:
- The General Insurance Code of Practice which all general insurer signatories agree to self-regulate under.
- Payment Card Industry Data Security Standard (PCI DSS)
The main industry bodies are:
- Insurance Council of Australia which represents general insurers.
- Financial Services Council
- Australian and New Zealand Institute of Insurance and Finance
- Underwriting Agencies Council
- Institute of Actuaries of Australia
- ACORD (Association for Cooperative Operations Research and Development) is the global standards-setting body for the insurance and related financial services industries. ACORD has standards for both General Insurance and Life Insurance and has been working with the Australia and New Zealand insurance industry since 2007 to develop electronic messaging standards to support seamless information exchange between insurance business partners.
- Australasian Institute of Chartered Loss Adjusters (AICLA) which represents qualified loss adjusters