In a document provided to Risk Adviser, increases in level premiums on some of AMP’s life insurance products went up by as much as 30 per cent.
For example, level premiums on AMP’s Flexible Lifetime – Protection product, with an age-determined benefit period and a waiting period of less than or equal to two months, went up by 30.25 per cent.
Similarly, level premiums on the Ex-AC&L product, with an age-determined benefit period and a waiting period of less than or equal to two months, increased by 29.75 per cent.
Other level premium increases across AMP’s life insurance products, including both the Ordinary and Super versions of its Elevate and Risk Protection Package, ranged between 16 to 23 per cent.
A veteran life risk specialist, speaking on the condition of anonymity, said for years advisers have always accepted in good faith the promise provided by life insurers that level premium rates are not “locked in” but may increase with unexpected claims experience over the life of the policy.
Further, any such increase would be similar for both stepped and level premiums in the same product, thus preserving the promised long term premium savings.
“AMP has effectively announced the death of that long term promise. Which insurer will be next to attack existing level premiums?” the risk specialist said.
“Why would any adviser now recommend to a client that they consider level premium over stepped premium to obtain promised long-term premium savings, given the recent outrageous segregation by AMP of level premium contracts from identical stepped premium contracts?
“What AMP seems to be suggesting in announcing these increases is that the actuaries who were employed to accurately cost these AMP, ACL and AXA risk products some years ago (the increases apply to policies issued before 2013) failed in their duty to accurately cost those life insurance products; that their actuarial assumptions over the longevity of the product were false.
“Apparently those actuaries could not foresee that as people age, illness might strike, and claims might just increase.”
In response, an AMP spokesperson said the premium increases reflect a range of factors, including the market environment and claims experience.
“Approximately 60 per cent of existing lump sum customers and 30 per cent of existing income protection customers have seen no change or a reduction in premiums,” the spokesperson said.
“We keep increases to a minimum, ensuring our products remain competitive and provide customers with the best possible value.”
I have always been reluctant to recommend level premiums. I have been concerned that CPI increases at the increased age rate and the potential for future premium rate increases could well and truly offset any potential long term premium savings to the client. In the last year or two I have been strongly advised by my licensee and Insurance company BDMs to start recommending them, particularly to younger ages as this was one of the issues that the regulator would be focusing on in the future. My Licensee was understanding of my concerns but asked that I starting considering recommending them anyway, Life company BDMs were dismissive of my concerns as there had no cases of level premium rate increases in recent memory for lump sum products. I shouldn’t be surprised that such a turnaround has occurred so shortly after there seems to have been a big push to start recommending level premiums and the insurance companies have now good a decent size book of business locked into their level premium product.
when John Trowbridge was an actuary at APRA, it was his job to oversee such matters, Point the finger at Trowbridge on this one.
One of the reasons for recommending levelled premiums, is to promote sustainable cover and cumulative savings over the long term for the policy owner.
Recommending levelled premiums, is to safeguard against substantial future premium increases, when the insured was more likely to suffer from illnesses such as cancer and heart attack.
Levelled premiums has been recommended to avoid the need of having to regularly replace insurance policies that are on stepped premiums, especially in the later years when it becomes less affordable. For example, trauma policies for an individual over the age of 50, who is a smoker and on stepped premiums pays a very high price. And if their health deteriorates, there is pretty much no chance to change or retain affordable cover.
It is understood that the levelled premium structure can increase either due to indexation of cover, or rerate of premiums due to various factors such as economic or business conditions, or even in the situation where payouts of claims increase. Equally important, insurers need to have sufficient capital to accommodate such situations.
Clients have always expressed their doubts about insurance companies, that when the time comes for a claim that they will do anything to avoid paying out. But of course this is not true, because Insurers have many statistics about the numerous claims they proudly pay out – hence offering a sense of security to policy holders so they can choose their products. As an adviser, the reassurance to individual/s comes from explaining that as long the applicant/s meets their duty of disclosure and fully discloses all relevant information to the insurer, the policy will be paid out to the right person at the right time.
I’ve been an advocating sustainable asset & income protection cover over the last 12 years. Reading this article has really shown, that a policy holder can pay premiums for a very long time with the expectation to have peace of mind.
As a business owner operating in this industry, it is very disappointing to see such practice. I sincerely hope other insurers do not follow their lead.
If they do, perhaps insurance company’s pricing will need to be regulated to ensure it is sustainable and priced in the best interest of the policy holders.
I don’t believe anyone truly said level premiums would never go up.
And have AMP (or anyone in the industry for that matter) always increased stepped and level the same? Of course not. So, for starters a longer term view is needed.
There also seems to be a view life companies should continue to make losses. This ultimately works for no-one. (Check out how much AMP and the industry are losing on these DI businesses- a truckload. Fact: Industry has lost over $1b on DI in last 3 years. ).
It is a disgrace But AMP are not alone. The FSC members are out of control. We have seen a third price increase in less than two years since the corrupt cartel members of the FSC started getting together to agree the LIF stitch up. Its time for a Royal Commission.
The issue he actually raised was that AMP have singled out level premiums to increase by more than stepped premiums. From AMP’s announcment today “Life insurance stepped premium rates will reduce by up to 14%.
Total and Permanent Disability (TPD) Option (ie TPD that’s attached to Life or Trauma insurance) stepped premium rates will reduce by up to 9%,All lump sum (Life, TPD & Trauma insurance) Level premium rates will increase by 15%.” In other words let’s gouge the level premium policy holders knowing they are likely (or more likely) to continue the contract and provide a discount to stepped policies to attract new business at the level policy holders expense…
Tony, I don’t think the issue addressed is that the adviser didn’t think level premiums would increase. The issue is that the increase for these level premium products is significantly higher than the increase of stepped premium policies (ignoring the standard age-based increase). It really does make me wonder how a 30% increase to premiums can be justified, and especially how a 30% increase can be seen as “keeping increases to a minimum”!!
I think Adam is on the ball, especially when these premium increases are considered along with AMP making the decision (internal policy introduced in November last year) to force change of ownership for policies older than 10 years to be underwritten. Just sounds like a risk reduction strategy – combined with a massive increase in premiums to increase profitability would would make AMP’s inforce book look much better for a potential sale of the risk business.
For the last 20 years , AMP and others had sold level premiums as better and cheaper in the long run than stepped and given glossy graphs in their marketing material to so indicate . ASIC has done nothing about this misleading advertising but allow this to happen.( Who cares ?) BDM ‘s promote level as better but do not say in the fine print they have the right to put up the premiums like they did in the 90″s anytime they feel like it !!! I will tell it like it is ,Level premiums are not necessarily level , they can go UP !! , so why write them . If you didn’t know this , have the guts to complain to ASIC about your Lcencee”s behaviour ( or sit there and try to explain to your clients you have misled them.)
a classical example of how product was mis-sold and pricing was mis-understood to begin with
I’m sure we will see other insurers follow suit. where is the accountability, the focus has been on advisers where is the focus on the product providers. Level premiums in the last 5 years are looking like being more expensive than stepped premiums, just from premium increases. I think the lemon law may apply to these insurance policies.
It won’t just be AMP, I’m sure I saw at least one other doing this as well. insurers invest the additional premium conservatively to get a return to offset the premium increase, starting at about half the insurance cost and reducing over time. Interest rates are rubbish so they aren’t getting enough return to cover the stepped premium increase so increase premiums, Maybe moving forward using level premiums when interest rates are low is questionable advice?
The increase in premiums makes sense. AMP Insurance is improving its profitability so it sell off its insurance arm for a maximum price.
If this adviser genuinely believed that Level premiums were to remain level for the life of the contract, he/she clearly does not understand the product. We have been told for years that Level premiums can be changed – but historically they haven’t been. This was blown up in the late 90’s at AXA (now AMP and some of the series of product possibly referred to in this article) so an adviser needs to understand their product better.
Maybe some of the BDM’s promoting level premiums might also be a bit stronger in their ‘disclosures’ of how level premiums actually work??