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.
It seems that every chance possible there are quotes / comments driving a wedge between advisers and life insurance companies. “Long story short, insurers are being driven by the regulator’s demands because they were poorly managed businesses for years,”
I think there’s a lot more nuance as to why premiums have gone up. For one, the pressure to meet best interest duties which means legal / compliance people tell advisers to offer clients only the highest rated product. Follow that thread and see the problems that has caused.
Level Premium policies should be calculated by their Actuary at the point of inception based on the client’s entry age and the maximum potential length of the policy term.
Advisers who recommend a Level Premium option are caught between recommending a long term financial benefit, but with a massive disclaimer attached to the recommendation that the premium projections are only just that and the Life Insurer can and may increase the premium rates at any time they deem appropriate.!!
Level premium rates need to guaranteed from inception, otherwise the client is at risk of financial disadvantage.
My Level premiums went up almost 300% in past 4 years…somehow, they dont seem to be very level…
How Level Premiums were ever allowed to be termed ” Level ” is an absolute disgrace.
These types of policies would typically take between 10-12 years ( some up to 13-14 years) to break even compared to the Stepped Premium option and yet if a client gets to the 5th,6th or 7th year and then receives a premium increase of 30% for every year after that, any perceivable cost benefit over the long term has been immediately lost to the client.
Level Premium options should be age based at the point of inception and only increased if the client wishes to increase the sum insured throughout the life of the policy.
To use an excuse from the Life Insurers that they have the right to increase Level Premiums if they increase for all policyholders at once is simply theft and deception.
what.. risk advisers? who’s left ??
ASIC introduce LIF > Less risk written > Insurance pool sinks > premiums increase > APRA introduce IDII> new business further shrinks > insurance pool further sinks > premiums increase > APRA & ASIC wonder why premiums increased.
I wonder what would have become if there was no government intervention? Would a free market have produced better results by increasing the insurance pool?
Maybe the managers and execs at these insurance companies should be forced to waste their time on the FASEA exam. That will ensure that they act ethically in the future as there are so many questions relating to ethical behaviour in it and passing an exam definitely make you an ethical person.