A “loyalty tax” appears to be alive and well in the life insurance industry in Australia, with those who stay loyal to their insurer likely to be paying higher premiums than new customers.
Analysis by Insurance Watch indicates that price is the top concern of life insurance policyholders, with feedback on premiums featuring in more than 35% of customer reviews (1).
“The focus on price is probably not surprising given the cost-of-living pressures most consumers are currently facing. However, our research also revealed that long term customers were more likely to be dissatisfied with their premiums than newer customers”, observed Insurance Watch Managing Director, Wally Ripper.
Consumers giving positive feedback on the pricing of their policy had held their policies for only 2.7 years on average. In contrast, those expressing dissatisfaction with their premiums had held their policies much longer, for more than 8.1 years on average.
“There are a number of reasons why this might be the case, including stepped premiums, which increase with age, and recent premium increases for some Trauma, TPD and Income Protection policies. However these results also suggest a loyalty tax exists,” said Ripper.
This is particularly the case for life insurance policies, where competitive pressures over the last 5 years have generally pushed retail life insurance premiums lower.
A comparison of average premiums over this period (2) indicates there have been large falls in the premiums available to new customers for those aged 45 and over:
Change in life insurance premiums over last 5 years
| Age at application | Male (% change) | Female (% change) |
|---|---|---|
| 45 | -27.5 | -21.6 |
| 50 | -28.9 | -26.5 |
| 55 | -27.4 | -26.5 |
| 60 | -22.4 | -19.9 |
| 65 | -18.1 | -17.9 |
But there are a number of reasons why loyal policyholders may not have received the benefit of these lower life insurance premiums:
- Duration-based pricing. According to ASIC, most life insurers have adopted this method of pricing, which assumes that a claim is more likely the longer a policy is in place. As a result, discounts are provided in the early years of a policy and then progressively removed over time. Under this pricing structure a long-term customer can end up paying more than a new customer of the same age.
- First year discounts. Some insurers offer upfront discounts in their premiums which are only available to new customers. These discounts generally only apply in the first few years of the policy. When they drop out, premiums revert to the higher “standard” rate.
- Legacy insurance brands. Older brands which are closed to new business, such as CommInsure, BT, Asteron, Resolution Life (formerly AMP) and Integrity may have higher premiums because they are no longer subject to competitive forces.
Existing policyholders may find the only way they can access lower rates is to take out a new policy. However, for those with health issues, switching policies may be difficult, as new applications require health assessments.
“Based on our observations, if a life insurance policy is more than 5 years old, there could be a substantial saving moving to a new policy,” said Ripper. “The best way to identify the size of this saving is to use a comparison website like Insurance Watch. We compare policies from Australia’s top life insurance providers. You can research your options online, at your own pace, and you don’t have to supply your contact details to see quotes.”
- Based on customer reviews left on the Insurance Watch website during the year ended 30th June 2024. 35% of reviewers referred to the cost of their insurance or premiums paid when expressing satisfaction or dissatisfaction with their insurance provider. This compares to 21% who provided feedback on the ease of applying, 17% ongoing communications and 12% service levels.
- Average premiums were calculated based on the insurers available on the Insurance Watch website on both 22nd August 2019 and 22nd August 2024 – AIA, ClearView, MLC, NEOS, OnePath, TAL and Zurich. Premiums for new policies were compared at 5 year age intervals between the ages of 15 and age 70 for $500,000 life insurance cover for male and female non-smokers with an office based occupation living in Victoria. Health discounts due to healthy Body Mass Index (BMI) or membership of health and wellbeing programs were not included.
The above information is general advice only and does not take into account your personal circumstances. Before deciding to purchase an insurance product you should read the Product Disclosure Statement and consider whether this product is right for you, having regard to your objectives, financial situation and needs.