Mr Cain said all of the insurers he received letters from cited “sustainability” as the reason behind the price hike.
He pointed out that as advisers are soon to take a reduction in how much commission they are paid, insurers should look to reduce premiums, not increase them.
“This leads us to question whether life insurers are price gouging,” Mr Cain said.
The lower commissions, coupled with increases in premiums, will ultimately improve the insurers’ bottom line, he added.
“It’s certainly not in the best interests of consumers and neither does it help maintain the sustainability of the thousands of small financial advice businesses, which provide the real human connection that clients and claimants so desperately need,” Mr Cain said.
“We believe this is an attempt by some of the insurers, many of whom are owned by the major banks, to continue to push consumers into their own direct products.
“Consumers who buy direct policies may pay as much as 100 per cent or more for life insurance products than those who take up policies offered via advisers,” he said.
Claims of gouging are wrong, yet I guess inevitable. What I can’t work out is why the life insurers don’t publicly state the issues they have been having with reducing profitability over many years. And that their shareholders are demanding a higher return on the capital they’ve invested. If you read the profit announcements of all the major life offices over the last 5 years you will see that all the companies have been dealing with lower profitability. Both lapses and claim rates are called out. If you take a look at APRA stats, which report profitability for the industry, you’ll see that the life companies are losing a truckload of money on Income Protection. The APRA stats don’t show Trauma separately, but I have no doubt that’d be the same. So, why do the life offices call it ‘sustainability’ when they could simply say we need to increase our shareholder profits, which have fallen well below expectations?
On the other hand… it also increases the commissions of advisers (60% of $1,000 is = to 80% of $750)
Either way, it’s not as though people are living shorter and medical breakthroughs are slowing down. How come their actuaries can’t seem to get their numbers right? Isn’t that what they’re paid to do?
If practices are unsustainable, shouldn’t APRA be investigating them and doing something more about it? Don’t think increased premiums will do the trick, increase price decreases demand for the good (economics 101).