24 Jul 2013

The direct insurance market continues to grow substantially, but this is being offset by significant lapses, Plan For Life has reported.

The researcher analysed lump sum sales data from companies that offer both direct and adviser-sold insurance, finding that direct sales are expected to reach $719 million by 2018. In-force direct business is similarly predicted to grow, reaching over $2 billion in the next five years.

Lump sum cover is the main product purchased via the direct channel, outweighing income protection cover by a factor of 16 to 1, the researcher said.

But Plan For Life added that the positive growth is counteracted by substantial lapses in the first twelve months after the sale. The study found that nearly 40% of policies purchased direct were lapsed within the first year. In contrast, retail business recorded an average of 8.4% of policies lapsing in year one.

‘There is a wide range of experience in this market… Nonetheless, as one would probably expect, direct sales are much harder to retain than adviser-based business,’ Plan For Life said in its report.

However, in the second year of policy life, advised insurance lapse rates increased to 13.5%, while direct-sold products were slightly lower, at 13%.

Plan For Life suggested the reason for the rise in retail lapses was likely to be due to a combination of annual cases lapsing just after the first renewal date and cases with other frequencies (mainly monthly) also exiting at a fairly high rate. The result also lends weight to the argument for an industry-wide review of responsibility periods.

Article published in RiskInfo.

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