Many direct life insurance business are losing money, according to Rice Warner Head of Life Insurance Richard Weatherhead.

“There are three or four [insurers] making money, but the rest have a long way to go to become sustainable,” he told insuranceNEWS.com.au.

“Many have products that seem to have a short life cycle, which suggests they are not making money.”

Rice Warner’s latest report on the market says the number of direct life insurance products sold in Australia has increased from 109 in 2008 to 203 this year – an 86% increase. 

Since the researcher’s report last year, 73 direct insurance products have been launched and 34 closed.

Mr Weatherhead says insurers with a strong brand have done better in the direct market and some, such as Hollard-owned Real Insurance, have become a brand in their own right.

“The power of incumbency is working for the big insurers,” he said. “There seems to be a lot of new brands joining the market, but they never seem to do as well.”

According to the report, direct life sales grew 11.3% in 2011 and inforce annual premiums are up 10.9%. 

Breaking the market down into the three dominant categories – credit-related, funeral and income protection – the results are very different.

Credit-related insurance inforce premiums were up 2.8% last year while funeral premiums grew 15.4%.

Income protection and accident insurance inforce premiums were up 17.4%.

Mr Weatherhead believes market growth in these segments has been due to more awareness of the risks of death and disability.

“Product marketers are becoming smarter at understanding individual client needs and targeting offers accordingly,” he said.

“We understand TV advertising is still working for these insurers, but brand association is still showing the incumbent insurers are winning a bigger market share.”

Rice Warner says the direct life business accounted for 11.9% of the overall inforce life insurance market last year. In 2010, direct had an 11.8% market share.