The industry can expect more strategic mergers as life insurers respond to changes in the Australian market, according to an IBISWorld report.

The report says high rates of policy lapses have pushed many life insurers to seek ways to minimise their fixed costs through economies of scale.

“Insurers will need to maintain policy pools with viable levels of diversity, even as many policy lapses eat into their volumes,” IBISWorld analyst Danny Martin said in the report.

“That’s why many will likely continue to seek out mergers to ensure feasible market coverage, resulting in increased concentration levels.

“This strategy has enabled life insurance providers to consolidate their teams and reduce fixed overhead costs per policyholder, enhancing their efficiencies and profit.”

In October, Nippon Life completed its acquisition of Resolution Life Australasia and combined the business with its MLC operations under the Acenda brand.

Acenda is now the second-largest life insurance provider, with a 9% market share on revenue of $2.2 billion, according to the IBISWorld report in December. 

TAL Dai-ichi Life is the market leader with a 13.8% share on revenue of $3.3 billion, and it has a minority stake in Challenger, a listed wealth manager with a life division.

Another consolidation is likely after Zurich last week flagged a deal to buy ClearView Wealth at an equity value of $415 million. The deal needs shareholder approval and regulatory clearance. 

IBISWorld says a perfect storm of cost-of-living concerns, lack of uptake from younger generations and business uncertainty around financial markets has diminished life insurers’ prospects.

“Life insurers will need to develop strong relationships with advisers, providing simplified advice models to ensure that those willing to present these policies to clients will continue to do so.

“Should regulators step in and weaken commission models to avoid conflicts of interest, this strategy could become less tenable.”