Advisers to watch closely as ASIC, APRA order review of life insurance premiums

ASIC and APRA have requested that all life insurance companies review their past premium increases to determine if they were applied in accordance with the applicable policy terms.

Namely, in a joint letter to the CEOs of all life insurers and friendly societies published on Thursday, ASIC and APRA said they are concerned that some life insurance companies have not appropriately applied premium increases to their retail life insurance policies in line with their policy terms.

The regulators also drew attention to their concerns that some have not acted in accordance with reasonable expectations created through their disclosure and marketing materials.

According to ASIC and APRA, these concerns also suggest that some life insurance companies do not have adequate systems, processes and controls in place to enable clear and effective disclosure, and to ensure that all premium changes are made in accordance with applicable documents.

Furthermore, the regulators are worried that some have not taken steps to make sure their marketing materials and other documents are not misleading.

As a result, ASIC and APRA have decided to request a review of past premium increases along with a review of their disclosure and marketing materials.

“We acknowledge that ensuring the ongoing sustainability of life insurance products is a challenging issue,” the regulators said.

“APRA’s measures related to individual disability income insurance (IDII) have set clear expectations on the design of sustainable products, including the need to provide policyholders with reasonable premium stability.”

Responding to the announcement, Intune Financial Services director and financial adviser Sam Woodhouse said that advisers would be hoping for the best outcomes for their clients.

“As an adviser, it’s a difficult one. Insurers have significantly increased premiums in the last few years. I have recommended cover that clients genuinely need, only for the premiums to be drastically increased a year later. I then have conversations with my clients about how the need for the cover has not changed, just the cost, and hopefully finding a way to keep the cover in place,” he said.

“Long story short, insurers are being driven by the regulator’s demands because they were poorly managed businesses for years,” Mr Woodhouse continued. 

“Bad management is leading to worse outcomes from clients. It’s hard enough to get a young, healthy person to get insurance they need; to then have the price go up 10 per cent to 20 per cent a year makes it a hard product to justify at times.”

All life insurance companies are expected to have provided ASIC with the findings of their individual reviews, any issues identified, planned steps to report, rectify and remedy these, and their proposed actions to meet the expectations on the design of future products by 31 March 2023.

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.