Life insurance companies have a contractual obligation to consumers to pay a lump sum of money or annuity based on the terms of the product sold. In Australia, the four main life insurance products are death cover, total and permanent disability cover, income protection and trauma cover. There are three main avenues from which Australians can purchase these insurance products; directly from the insurer, with an advisor or through their pension. In 2018, total revenue from this sector was $35.7 billion, or 1.4% of Australia's GDP. Recently, this sector has come under unprecedented scrutiny by the Royal Commission, resulting in expected volatility in future profits. There are numerous factors currently influencing the profitability of this industry and this case study will examine internal rivalry and market structure, government policies, price discrimination and technological changes. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay There are numerous medium to large sized companies in the life insurance industry making it a competitive market. Not perfectly competitive as the products offered will differ slightly in prices, premiums, etc. The life insurance industry is heavily regulated by two primary government bodies; the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC). According to IBISWorld, increased regulation is expected to affect the profitability of companies in the future as the demand for insurance products is heavily influenced by changing regulations. The Royal Commission on Misconduct in the Banking, Superannuation and Financial Services Industry has set out a number of recommendations which the Government has implemented and which also impact the profitability of the life insurance industry. One such reform that has come into effect is the Protecting Your Superannuation Package law where new members under 25 and members with account balances under $6,000 can opt in instead of forgoing the insurance component of their pension. In 2015, there were 14 million collective policies out of a total of 21.9 million. Since group life insurance through an employer is one of the largest customer bases for this industry, although these recommendations were aimed at the superannuation industry, the demand for insurance products will be profoundly affected. Additionally, as part of this law, accounts inactive for 16 months or more will have their insurance cancelled. This cancellation not only prevents premiums from being paid, thus reducing demand and profitability for insurance companies, but these companies will also need to invest in technology and data analysts to identify the many portfolios that will be affected. This change indirectly increases costs and further decreases profitability. Government regulations can also directly impact industry costs. Based on the recommendations of the Joint Parliamentary Committee on the Life Insurance Industry in March 2018, the Government recently passed legislation on Recommendations 9.1 and 9.3 prohibiting life insurers from “using predictive genetic information”. Previously, insurers could force potential policyholders to disclose genetic test results to ensure that the premiums charged covered any additional risks, however since July 2019 this is no longer.
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