A recent article published by the Australian Prudential Regulation Authority’s publication highlights the ways in which the Australian life insurance industry has changed over the past decade. The developments reported in this article suggest that there have been significant changes in the risk-management and financial planning habits of the Australian population over the last ten years.

The Australian life insurance industry experienced major growth between 1994 and 2004, with after-tax profits increasing from $2.5 billion in 1994 to $3.7 billion in 2004. Virtually all of the increased business was due to the growth in wealth management services, such as superannuation schemes, which accounted for nearly 90% of all life insurance assets by the end of 2004.

In contrast, traditional life insurance products declined in popularity over this period, from 30% of all assets in 1994 to only 13% in 2004. Within this area, risk insurance products such as term life insurance, lump sum disability insurance and income protection grew significantly, by 9% per annum between 1998 and 2004, whilst traditional whole term life insurance policies declined in popularity.

These trends may indicate an increasing tendency on the part of Australians to rely on superannuation schemes for their financial security in old age, or to supplement these with other types of investments. Superannuation schemes are particularly popular due to the tax-benefit incentives that they now offer, wheras in contrast the tax perks previously available to the holders of non-superannuation life insurance policies have been removed by the Government.

The increase in demand for risk insurance products shows that Australians are keen to plan for unforeseen circumstances and to invest in protecting their families from future hardship. Yet, whole term policies should not be overlooked as part of a financial planning strategy, as they can represent very profitable investments, and a valuable means of supplementing retirement benefits.