Strong warning issued to life companies on premium increases
One year after ASIC and APRA sent an open letter to all life insurance providers expressing concern about premium increases, they have released a progress report and set their expectations for the future.
Back in December 2022 ASIC and APRA asked life insurance companies to review:
- Past premium increases to ascertain if they were applied in accordance with the applicable policy terms
- Past disclosure and marketing materials to determine if they were clear about how premiums may change over the life of a policy
Following internal reviews some life companies have already taken action:
- Three life companies found cases where premium increases were wrongly made and remediation has started.
- Three life companies identified other possible problems and areas for improvement in disclosure and marketing materials.
However, the joint letter from ASIC and APRA today make it clear that more needs to be done.
What the Authorities have observed
Their conclusion is based on the following observations:
Premium increases (re-ratings) over the period 2017 to 2023
- Frequent re-ratings – 7 of the 16 insurers examined had re-rated at least 4 times in this period, with 13 insurers having re-rated at least once
- Re-rating rationales – most insurers said these were triggered by claims experience and were to restore target profitability levels
- Smoothing and capping – some insurers chose to make a large increase in a single year, while others made smaller, more frequent increases to smooth the impact
- Increases for level premiums were generally larger than stepped premiums – despite consumer expectations these would be more stable
Marketing and disclosures
- Potentially misleading graphs about level premiums
- Lack of details of why and how premiums would change
- Lack of transparency on duration-based pricing (where premiums are reduced in the first year of a policy and then increased in the years after)
- Challenges in offering products with premium stability due to their higher price
- Insufficient consideration of consumer’s need for premium stability in product design
Expectations for the future
In view of the above, ASIC and APRA have put the life insurance companies on notice that they will expect the following improvements:
- Premium Increases – ensure that policy terms about how and when premiums may change are transparent and not unfair. Re-ratings should consider the impact on consumers
- Marketing and disclosures – point of sale and ongoing communications need to better explain how premiums are calculated and how they might change over the policy life
- Product design – consumer needs should be considered, including the need for premium stability over the long term
Over the next 12 months APRA and ASIC will monitor how the life insurance companies are meeting regulatory, consumer and community expectations.
The door has been left open for taking regulatory action if these expectations are not met. APRA has previously taken action by intervening in the income protection market after it identified failures in product design.
Upfront discounts dropping out, duration pricing and cumulative premium increases over a number of years could mean that your existing insurance policy is now more expensive than a new policy. Our online premium comparison tool can help you to compare your premium to quotes from a range of insurers.