Speaking at the parliamentary joint committee on corporations and financial services life insurance inquiry in Melbourne yesterday, Synchron chair Michael Harrison, who was Zurich’s head of life risk from 1998 to 2003, said there are steps life insurers could be making to alleviate industry issues.
One of these includes moving from stepped to level premiums, he said.
“There are some changes to policy design I think we could make that would make a significant difference to the industry, but I don’t see any sign frankly of any insurance companies wanting to do that because it’s far more profitable not to,” Mr Harrison said.
Veteran risk adviser David Ward also told the committee that stepped premiums are “just a rip-off by insurance companies”, citing one of his clients as an example.
“He said that policy was sold to me three years ago and he was watching it. He said the premium’s already way above what you quoted on the quote you left with me,” Mr Ward said.
“That’s what [insurance companies] do. They start the premium offloaded at the business and then it’s open slather.”
Mr Ward said insurance companies should be compelled to have their premiums written on the back of their policy documents.
“That’s being honest. That’s being helpful to policyholders. They don’t, because they’re totally open then,” he said.
Meanwhile, AIOFP executive director Peter Johnston said life insurance companies have, over time, changed their focus from the best interests of policyholders to the best interests of shareholders.
“The most significant anti-consumer events over the past 20 years have been the life offices demutualising, thus changing their focus from policyholders to shareholders’ best interests, deciding to market directly to consumers via telemarketers, group schemes, internet sales and delayed underwriting tactics,” Mr Johnston said.
Others have said ‘change is needed’. We need to stop all of this and get on with looking after our clients’ needs. The longer we ‘protest’ the more likely level comms under a Shorten government. Sure, work behind the scenes to bring the FSC to account, but stop calling for change…enough change already!
Hi Michael, the North American experience with fixed term level premium policies has been extremely challenging I believe. Massive lapses at the end of the term, and those that have health concerns wanting to extend cover. I understand the cost of extending the cover had been virtually unpriceable, and the fair price ridiculously high.
Thank you for reporting my comments. There were two specific issues that I raised to illustrate my comments about insurance company profits.
1. Consumers would be better off if ALL policies were underwritten at inception so that direct, group and superannuation policies could not be disputed at claims time due to “undisclosed” prior illnesses that the policyholder had not realised might be relevant. i.e. The “catch all” clause in these policies.
2. Consumers would be better off if insurers offered fixed-term level premium policies. For example, a five, ten fifteen or twenty year fixed term policy would cost less and would allow policy holders to “shape” their insurance to meet their needs. This would also avoid so-call lapses of yearly renewable term insurance where premiums become prohibitive at older ages.