Life insurance industry growth and profits have been badly hit by disrupted advice distribution channels over the past 18 months, a KPMG analysis says.

The industry is now loss-making in aggregate, the consultancy says. A $33 million profit in 2018 has worsened to an $86 million loss in the first half of this year. The life industry’s profit was $1.5 billion two years ago.

Ordinary life risk product lines reported a $130 million loss in the first half of this year, with retail disability income the worst performer. It made a $499 million loss in the first half of the year.

Disability income business made a loss of $567 million in 2018. Product design issues, demographic trends, regulation and changing community expectations all contributed to its woes.

The introduction of the Life Insurance Framework and a retreat from direct distribution models after the Hayne royal commission has reduced commissions and led to subdued growth rates, KPMG says.

Direct premium growth contracted by 1% in the first half of the year compared to the same time last year and increased by only 1.6% over the whole of 2018.

Superannuation risk products have also deteriorated, with just $44 million profit during the first half of the year, compared to $372 million over the whole of 2018.

KPMG Partner and Head of Life Insurance Pauline Blight-Johnston says the past two years have been a considerable challenge for the industry, and the public is increasingly questioning the industry’s value.

“The profitability challenges driven by higher than expected claims payments across the industry are perhaps the greatest we have seen in a generation,” she said. “There is clearly a large disconnect between the perceived and actual value being delivered by these products.”