An adviser has slammed the poor behaviour of insurers in hiking premiums for existing customers while new client rates stay unsustainably low, as the life sector grapples with the competing forces of regulatory restrictions and the chase for market share.
Adam Wade, director of northern NSW practice TNR Wealth Management, told ifa his clients were being unfairly penalised by pricing sustainability issues in the life industry while insurers chased new clients with loss-leading premium rates.
“I have a client who has come to me with a TAL policy taken out in 2012. The annual premium is $8,102 because it is on series 30,” Mr Wade said.
“A new client can take out a new policy with TAL for $6,051 with the same sum insured, benefit and wait period, so the existing client is being charged $2,051 which is 34 per cent more than a new client.
“TAL will argue it is a different PDS, which would imply the old policy is better than the new policy. Or is it because they push the premiums up on existing clients and discount new clients to get them in the door and then push the premiums up on them?
“To move our client to the new policy requires underwriting, which in this client’s case will result in an exclusion. So the client is essentially stuck paying 34 per cent with the insurer they have been loyal to or take on a policy with an exclusion. Why is this behaviour allowed?”
The comments come following the recent release of a white paper from life insurance group PPS Mutual that noted the issue of insurers offering front-loaded discounts to win business was endemic in the sector at present.
The paper noted that while front-loaded discount insurance products were 2.5 per cent cheaper than the competition in year one of a policy, by year three and subsequent years the products were 5 per cent more expensive on average than the market.
“In the case of one insurer offering a 25 per cent up front discount, if you take into account age based increases and indexation, policyholders could face a second year premium increase of 50 per cent,” the report said.
The issue also came to the fore at the recent FSC Life Insurance Summit, where industry attendees were asked in a live poll to nominate the top issue affecting life insurer sustainability. The top response from the audience was “irrational competition”.
Ian Laughlin, convenor of the Actuaries Institute’s taskforce on disability insurance, told the summit that the poll results were particularly telling around the unhealthy business practices that had been developed in recent years as insurers pulled out all the stops to chase market share.
“We’ve adopted poor practices and hoped that they would work out. There’s a really strong message if you’ve got the industry saying they’re worried about irrational competition, that’s a real call to management and boards in the life industry to sit up and take notice,” Mr Laughlin said.
“If you go to the group market and see the bouts of poor financial performance, it’s often a result of a focus on the short term and winning a big group contact, and you pay the price down the road because you might have won it on the basis of probably an unsustainable price.”
A spokesperson for TAL said the insurer was grappling with similar industry-wide issues, but that it was not its practice to offer front-loaded discounts on retail life policies.
“There are many overlapping aspects to design and pricing in relation to Individual Disability Income products which the industry is currently examining and addressing, in line with the timeframe set down by APRA,” the spokesperson said.
“Ensuring these products are fit for purpose, affordable, and deliver a good outcome for and meet the needs of customers is essential to supporting both product and industry sustainability for the long term.
“We endeavour to keep premiums as stable as possible for the life of the policy by pricing our products sustainably for the long term, and we do not have any income protection products on offer which feature front-loaded discounts.”
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