Life insurers need to explain double-digit premium increases
Australian life insurance consumers have been the subject of repeated double digit increases in their premiums and life insurers should explain why, according the Financial Advice Association of Australia (FAAA).
In a response to the current independent review of the Life Code, the FAAA pointed to significant premium increases as a key issue along with the confusion which can be caused by insurers offering upfront premium discounting.
The review, being chair by former Australian Securities and Investments Commission (ASIC) deputy chair, Peter Kell, has been told by the FAAA that, “over recent years, life insurance consumers in Australia have been subject to very significant premium increases on their life insurance policies”.
“This has involved repeated double digit increases, which in many cases will mean that they are paying nearly double what they were paying just a few years ago,” the FAAA submission said.
“Life insurance is already a product where age factors result in regular premium increases. On top of this, large pricing increases can have a substantial impact on the budgets of Australians. Such large premium increases can put pressure on clients, particularly if they have other financial challenges at that time,” it said.
The FAAA said that premium sustainability is critically important given the number of factors that would influence future premium increases.
“We would like to see improved communication to clients of what they can expect in terms of future premium increases over the medium term. We would also like some means of the adherence by the life insurer to those projections or accuracy of those projections to be assessed,” it said.
“The ability to increase premiums is the major lever available to life insurers. It should be used very carefully and in a manner that involves a high level of transparency. Achieving greater premium sustainability is a key demand of life insurance clients and should be a priority of the life insurers.”
On the issue of upfront premium discounting by insurers, the FAAA submission noted that, in recent years it has become common for life insurers to offer material upfront short-term premium discounts for new clients.
“The consequences of this are that it is often in the interests of clients to seek new cover on a regular basis to access these discounts, provided that their health has not deteriorated in the meantime.
“It is our view that this is a very problematic practice, which can work to the disadvantage of existing clients who remain in their existing policies. Whilst the Code does not currently address pricing issues, this might be an area that the review could consider,” it said.
This is way overdue!
Personally my affordable LEVEL premiums that I took out in my 30s on the understanding that the insurance would be there when i needed it in my 50’s is unaffordable at more than one month’s after tax salary. APRA have a lot to answer for allowing this to happen under their watch, and even at their instigation.
@Anon
As you now know, what you thought you bought in your 30’s was a myth promoted by any one of 37 life companies that used to be around.
Competition for risk business forced life companies to introduce large initial premium discount to attract new business.
Here’s the irony of that process.
If you had been with a particular life company for 3 years your premium would be X $$.
If your twin brother came along 3 years later & applied for the same level of cover as you with the same life company, his premium would have been X$$ -30.0%’
So, for your 3 years of loyalty, your life company is happy to “screw” you by giving your twin brother a 30.0% first year discount.
It was easy to promote because if you chose level premiums at your particular stage of life and compared them to yearly renewable (YRT) term rates, here’s the thing.
You would have found that the premium difference was minimal compared to each premium estimating future projection cost and within 8 years, the YRT rates would have caught up with your current level premium rates taken out earlier.
The point is none those future projection rates were ever guaranteed.
And the reason is very simple. No life company could ever guarantee that their future claims could ever match current projected premiums.
With limited competition, there is no reason for life companies to offer competitive premiums to existing policy holders.
And if you or your clients go elsewhere, you have no guarantee the premiums will be any less (collusion between life companies ?)
And more importantly any health changes involving you or your clients will either limit where you go or have to accept an” exclusion” that doesn’t exist with current insurer.
Even if the client is willing to accept an “exclusion” I can tell you, ASIC will not, if there’s a claim!
So basically both level and yearly renewable terms rate ongoing existing policy holders have been totally screwed by the Life Insurance Companies.
Wow, who’d of ever thought that an Insurance company would
screw people 🙂
But wait, the Life Companies are busting to flog everyone Lifetime Annuities for half the Super pool of Trillions $$$$$.
A Lifetime Income that is supposedly built on the trust of the Life Insurance Companies.
Can’t wait for that disaster in 15 odd years.
ASIC has been ignorant in its handling of the issue of Duration Based Pricing. I’ve yet to find a PDS which sets out exactly what will happen to the clients’ premiums in the first 5-7 years of the policy life. It’s just not there. But this is a regulator who will jump all over advisers who miscalculate the amount of commission they will earn from a product, but won’t touch insurers.
The facts are ASIC doesn’t have the teeth to attack duration based pricing as a misleading and deceptive form of marketing and neither does the ACCC. We are still to hear the results of an ASIC review that occurred over 18 months ago
Your comments about an adviser’s liability when he replaces a product with rapidly increasing premiums, with another product which contains an exclusion for a pre-existing condition which developed post the first policy start date, is spot on. We’ve yet to see a court case but my prediction is that very soon there will be ASIC action against advisers who the recommended these solutions because of the communication requirements in Standard 5 of the FASEA Code.
ASIC could have a lot of fun in court over that requirement of Standard 5 that the adviser must “ have a reasonable basis that the client understands the recommendation, and the implications for them and their family, now and into the future”. Human nature says the client will always state “he never told me that”, just to advantage themselves in a dispute
This has been happening under ASICs eyes for over a decade and not once has any attempt been made to substantiate a logical reason ( other than greed) We spend most of our time re assessing people’s positions and reducing cover or benefits just to keep them covered to some degree
The answer is adjusting the benefits not pricing the client out of it But I fear that ship has sailed
Didn’t the FPA & AFA now the FAAAAAAAAAAAAAAAAAAAAAA back the introductions of LIF & FARSEA ?
Former ASIC’s Peter Kell’s time saw the fraudulent Report 413, highly selective look at a small number of known Life Insurance Churner advisers to justify LIF.
Kell’s ASIC time also oversaw the intro of FARSEA.
And the Life Insurance co’s were all for LIF to screw Advisers, so they could flog their Dodgy Direct Life policies without Adviser Comms.
Until the Royal Commissions exposed how crap the Dodgy Direct Life policies and processes were, and basically shut it down.
Life Premiums increase over 100% post LIF.
Adviser numbers decrease over 45% post LIF and FARSEA.
Life Insurance specialist Advisers decrease what 90% post LIF & FARSEA ?
Post LIF & FARSEA, Life Insurance new business plummets and existing Life Insurance customers drop off like dead fly’s as premiums skyrocket.
Now the FAAAAAAAAAAAAAAAAAAAAAAAA are complaining about skyrocketing Life premiums.
And Kell that helped implement this Life Insurance disaster is going to review the Life Code.
If this wasn’t such a stupendous disaster in every way, it would be beyond funny.
What a freaking sad joke.
Astounding that they use Peter Kell, they guy who oversaw the implementation of the LIF framework, which is predominantly responsible for the large premium increases! Is Peter there to study the failings of his government intervention into private markets? Maybe he can study the amount of people who could have claimed on their policies but had to cancel or massively reduce their cover due to affordability issues? Or maybe he is there to study how insurers try to make claiming on their policies much harder, driven by their own profitability issues? #HeadsOnSticks
It’s actually a downward spiral from all sides, starting with de-mutualisation. Commissions should be higher, responsibility periods longer, definitions enforced, education requirements rolled-back.
Don’t know about responsibilities being any longer. 2 years is far enough in a distorted premium market.
The upfront premium discounting must stop. I have a client who premium has increased 20.58% without any indexation. It would have been 24.6% with Indexation. The premium has increased $2,553.38. This is unfair for the client who reaction was disbelief that anything has gone up over 20% in only 12 months. The client would have renewed if the premium was about 7% increase but not over 20%. Hence, we now have a writeback of 66% which has nothing to do with advisers. Thanks Insurers and regulators for your outstanding work in killing the Risk Insurance market.