Cost of living pressures led to higher lapse rates while declining adviser numbers have affected sales of death and disability income insurance (DII) policies, consultancy KPMG says in in its latest annual review of the life industry. 

At the same time, organic growth continues to prove challenging for life insurers, but the industry still managed to double its profit to $1.2 billion for the year to June 30, based on returns lodged with the Australian Prudential Regulation Authority (APRA). 

Lapse rates for individual-advised business started to increase last year, reflecting the cost of living pressures, but they remain lower than 2019. 

“The economic pressures on consumers and rise in premium costs has contributed to lapse rates starting to increase,” KPMG Actuarial Partner Briallen Cummings said. 

“Having said that, the lapse rates in 2022 were still lower than in 2019, which shows a resilience in the industry.” 

The annual KPMG assessment of the industry is based on published APRA data including insurers’ financial results and claims numbers. 

The lapse rate for individual-advised DII policies rose to 12.7% at the end of last year from 12.4% in 2021, total and permanent disability (TPD) to 15.2% from 14.5% and death to 14.1% from 12.8%, according to KPMG. 

“We can see the impact of the decline in the number of independent financial advisers, with a drop in the amount of people buying death and disability income insurance policies through advisers,” Ms Cummings said. 

The size of the market as measured by annual premium increased, with life insurance premium income – excluding reinsurance – rising by 4.1% to $18.6 billion in the year to June 30. 

KPMG expects the industry to remain focused on costs and expenses and embedding business efficiencies to further improve profit levels. 

“Overall, after some bleak recent years, the industry will be gratified to have had its second year of profits, especially given the uncertain economic backdrop and ongoing changes in the regulatory environment,” Ms Cummings said.