Why are life insurance policy premiums increasing?
Far and away the most common grumble we have heard from our clients over the past year or two has been about the rising cost of life insurance premiums.
No-one likes to see prices go up but at the end of the day it is important to understand the economic and regulatory factors that are pushing prices up.
Perhaps the largest single factor is that life insurance companies are constantly paying out on insurance claims, which means the insurance companies are constantly incurring significant costs.
And while you may hear stories about insurance companies not paying claims, the fact is that all valid claims are indeed paid. In fact, a total of $12 billion in successful insurance claims were paid to 101,821 policy holders in 2019, according to a joint Financial Services Council (FSC) - KPMG life insurance data report.
Regulator, the Australian Prudential Regulatory Authority (APRA), has reported that for the year to 30 June 2020 the claim acceptance rate across all life insurance cover types and distribution channels was 94 per cent. That means almost all claims filed by consumers were in fact paid.
In 2019, APRA also introduced regulatory measures to pro-actively force insurance companies to change the way they had been pricing many insurance products because the regulator was concerned about sustainability for the future of the life insurance industry.
In short, it felt that the premiums being charged for some types of life insurance products were not economically sustainable.
The fact is, in recent years, the overwhelming majority of insurers have seen their claims experience significantly exceed their budgeted expectations.
Life Insurance (particularly Income Protection insurance) has been underpriced for some time, given the competitive nature of the industry and the volume of claims made. Consequently, the market is currently undergoing a ‘correction.’
That is why it is now tougher to find good value in the market, than it has been previously.
Premium increases have been deemed necessary by most insurers to satisfy the regulator, to make insurance sustainable long-term and for sufficient funds to be available for its prime purpose, to pay out on customer claims when required.
The good news is that these measures will mean a stronger industry that will be able to pay claims when they arise.
As stated above, APRA has reported that the claim acceptance rate across all life insurance cover types and distribution channels was 94 per cent.
And if you have an adviser, like AFRM, assisting you with your claim, the claim acceptance rates are even higher.
For example, according to the APRA data, 96% of all death related life insurance claims are paid if you have an adviser, while 94% of all Disability Income Insurance (also known as Income Protection) claims are paid.
Claim acceptance rates remain high even for more complex types of claims, such as Total and Permanent Disability (81%) and Trauma (85%).
That said, we do understand that for some people these cost increases are not palatable and, as such, we are happy to talk through your options with you.
However, please also keep in mind that life insurance policies are quite different to your general insurance products (Car, Home and Contents insurance etc.) and are not as easily altered or swapped around given the advice compliance regime and the underwriting process for new personal insurance policies.
The process for re-applying for new life insurance cover is more than simply searching the market for a cheaper premium rate.
It includes:
getting advice on your specific risk needs,
undertaking a thorough policy analysis to ensure either:
- you don’t lose any important features compared to your existing policies, or if you are losing key features, ensuring that you are fully aware of the trade-off involved; and
- that any cost saving achieved is indeed the time required in changing your cover, because any changes implemented require re-underwriting, applications, disclosures, medical histories, and in many cases, medical examinations.
Given the medical assessments involved, the viability of new policies will be largely dependent upon your health at the time.
Established in 1997, AFRM has always worked with our clients with the mindset to put in place long-term risk mitigation solutions.
We build our advice based on what we know works at claim time, having achieved more than $200 million worth of claims paid out to our clients. When it matters most, we believe that it is our experience that makes the difference.
So, whether you are a professional seeking to protect your practice, a businessperson seeking to protect your business or simply parents seeking to protect your family, we can help.
We can advise on Asset Protection, Estate Planning and Cash Flow Protection for individuals, as well as Business Succession, Keyperson Protection and Business Overheads Protection for Professional Practices or Business owners.
We can also work with specialist Estate Planning solicitors to ensure your risk protection plan ties in with your estate needs.
We are also experts in claims management. We understand policies inside and out, so we can ensure our clients get the maximum protection available.
Our long-term association with the insurance sector and our size allows us to work directly with underwriters to ensure we get the best terms available.
When things go wrong, we can get the best possible outcomes for you. Sincerely, Rob Vitnell
Acting Managing Director AFRM.