Ask an Expert: What is the future of Australia's life insurance industry?

Q: With the decline in new business premiums, ever-fewer advisers and skyrocketing mental health (and other) claims what do you predict for Australia’s life insurance industry?

A: There’s no denying Australia’s life insurance sector has been through a massive shake-up over the past decade.

New business premiums have declined steadily since the Future of Financial Advice (FOFA) reforms, and we’ve seen a dramatic fall in the number of advisers – from around 30,000 to just over 15,000 today, with only 500 of these advisers writing half of Australia’s life policies.

That’s a structural collapse in distribution, and one of the biggest challenges we face.

On top of that, we’re grappling with a surge in mental health claims, particularly income protection and trauma related. ADHD, anxiety, and depression are now among the top reasons for policy declines.

COVID accelerated both awareness and diagnosis of mental health issues, which is a good thing socially, but it’s been a significant profitability and underwriting challenge for insurers who weren’t prepared for the spike.

Despite this, I’m cautiously optimistic. 2024 saw a small uptick in new business premiums, and I believe we’re on the edge of a slow recovery –  provided we get a few key reforms right.

One of the most important shifts is regulatory: the Quality of Advice Review and Delivering Better Financial Outcomes Tranche 2 (DBFO2) are creating a more practical pathway for advice to reach consumers, including a new class of advisers focused on simple life insurance conversations.

That’s crucial for closing the underinsurance gap, especially among young Australians and those unaware of what’s in their super.

Technology is another driver of hope. AI is transforming how advisers operate – from admin to client engagement – and can help cut the time and cost it takes to serve customers.

Meanwhile, insurers are investing heavily in wearables, wellness programs, and behaviour-based discounts to encourage healthy habits and reduce preventable claims. It’s a smart move –  if we can invest in prevention, we lower risk and improve lives.

At the same time, we need to address pricing and commissions. The current commission cap has made it nearly impossible for new advisers to enter the sector sustainably.

We must revisit this – especially if we want to attract a younger, more diverse cohort of professionals who see life insurance advice as a viable and rewarding career.

Lastly, super funds will play a bigger role in group cover and claims management. But they must invest in better systems and staff to reduce the appalling delays we’re still seeing – sometimes six to twelve months between claim and payout. That’s simply not acceptable.

In short, the road ahead isn’t easy, but it’s not hopeless either.

With the right regulation, smart tech, investment in well-being, and a renewed focus on claims service, we can rebuild trust and relevance in life insurance.

This sector is essential to Australia’s social and financial fabric – and getting it right will take pressure off our health and pension systems for decades to come.

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