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Consider client circumstances amid premium jumps

Increased premiums from insurance companies could lead to higher commissions, but advisers need to ensure the cover is still in their clients’ interests.

According to John Birt, chief executive of Radar Results, there is an increase in premiums on the horizon that could lead to additional revenue for advisers.

“It seems strange to pick up additional ongoing insurance renewal revenue without doing any more work, but many insurance companies are raising their premium rates,” Mr Birt said.

“Usually, the insurance rate moves up on stepped insurance policies, whether life insurance, income protection insurance or critical illness insurance, as the policy owner's age increases.

“Last week, One Path, an insurance company owned by Zurich, reported a possible rise of a 100 per cent increase in their income protection policy premiums. The rate will increase by 50 per cent per annum for two years.”

Mr Birt provided an example of an income protection policy that increases from $8,000 to $16,000 over two years.

“The financial planner servicing this policyholder may receive an additional ongoing trial commission, which could effectively double,” he said.


Provided that the renewal commission is 20 per cent per annum of the premium, the commission on the example policy would increase from $1,600 per annum to $3,200 per annum, without the adviser taking on any additional work.

Mr Birt stressed that this should not be the end of things for the adviser.

“In the client's interest, the financial planner will look at alternative policies with other insurance companies to offset this higher cost. The client's health is an important consideration as their health could have deteriorated since stating the original policy and buying a different one is impossible,” he explained.

“Should the policy owner not be able to afford the higher premium, the financial planner can reduce the insurance coverage to lower the premium, increase the excess, or do both.”

He did, however, note that this kind of premium increase would be unusual.

“While I haven't seen this rate rise before, I understand most insurance companies regularly increase base rates,” Mr Birt said.

“You have to wonder why: price [gouging] or just because they can. If the policy owner had negotiated a fixed level premium at the start of the policy, how can the insurance company increase the rate? The answer is that they can. It doesn't seem fair.”