Mapping the growth of life insurance in Australia
- British Life Insurance companies and Mutual Societies established by clergymen were the first life offices in Australia.
- Arrival of compulsory superannuation in 1992 caused dramatic changes to the market.
The first life insurance companies in Australia began in the 1830s with the establishment of branches of British companies. The industry expanded with the development of mutual societies to provide support for those experiencing financial hardship.
The first Australian owned life company was AMP Society, which was established in 1849. It’s arrival sparked the establishment of more and more Australian companies including Colonial Mutual, National Mutual and Mutual Life Association which was later to become MLC.
Regulation of the Australian life insurance market
The industry took a significant turn in 1945 with the passing of the Life Insurance Act. The act placed some important regulations on companies and mutual societies offering protective cover;
- Only life companies registered under the act could provide protective cover.
- Funds for life insurance policies had to be held in statutory funds away from other forms of savings and investment funds.
- Most policies offered at the time were quite straightforward offering whole of life cover and endowment assurances.
Arrival of new life cover services in the 1960s
The 1960s saw the arrival of many new life insurance companies and an important Ruling from the Treasurer at the time, Harold Holt. This requirement meant that life insurance and superannuation funds were to hold 30 per cent of assets in government securities. Of this 30 percent, two-thirds had to be held in Commonwealth securities. The thought behind this action was to provide a market for government debt. This remained in force until 1984 when it was abolished to provide greater opportunity for investment by life offices.
Another key change was the arrival of provision of superannuation by life insurance companies. What was once only available to people in the public service now became a popular incentive for employees to stay with their current employer. Life Insurance companies offered group endowment policies, providing a product with an investment component. This type of policy are no longer offered.
Deposit Administration policies
Life Insurance companies saw a decline of business with a growth in popularity of self-arrangements whereby the persons investments were managed by merchant banks. To combat this, life companies developed “deposit administration” which were unbundled plans available on an investment account basis, made up of three primary components:
- Charges on the policy
- The insurance
- The savings
These deposit administration policies enabled savings to be directed into different investment-linked funds.These were equity funds, fixed interest funds and Government security funds.
Superannuation in statutory funds
The life insurance act of 1961 allowed for superannuation to be placed in separate funds. This enabled offices to have multiple investment policies in a range of funds.
Life Insurance continued to maintain steady growth, particularly as premiums were tax-deductible. Superannuation business proved to be far more popular to traditional endowment assurance which saw a rapid decline in popularity.
Arrival of unbundled life insurance policies
The 1970s and 1980s gave rise to individual superannuation schemes and the arrival of the unbundled life insurance contract.
What is an unbundled life insurance policy?
- An unbundled life insurance policy whereby the agreed total premium, after deduction of expenses and cost of life cover, is directed into a savings account or into an investment trust.
- The money accumulated does not expire once the policyholder reaches a certain age.
- The policyholder has the flexibility to determine how much is deposited and adjust the frequency for payment while the policy is still active.
Demutualisation of life insurance companies in 1990s
As stated previously the first life offices in Australia were mutual companies with a strong focus on social awareness and provision of basic financial support in the event of death. These early mutual societies thrived as they encouraged both self-reliance and support for those experiencing financial hardship. The loss of the Mutual Societies dominance of the insurance market began with the arrival of new life insurance companies to Australia in the 1950s and the provision of superannuation funds by Merchant banks.
The 1990s saw the arrival of major “wealth creation” organisations causing mutual life offices to restructure in order to compete with non-mutual life companies.
The Australian life insurance market
The Australian life insurance market is now made up of multiple players ranging from life insurance companies, general insurance companies, friendly and mutual societies, major banks and foreign financial conglomerates. The market is one of fierce competition, with literally hundreds of different policy options available to consumers. Applicants that may have once been deemed uninsurable now have options available to them and people are now more than ever able to hunt out policies with competitive premiums with features suitable to their needs.