IP premiums continue to increase but new products to help

Income protection insurance premiums increases are likely to continue but new products, along with the industry working together, are needed to get the pricing right, according to a panel.

Speaking at the Association of Financial Advisers (AFA) conference, AIA chief executive, Damien Mu, said volatility in premiums had not been a “friend” to the industry and was not good for the cost of an advice business, not good for relationships with clients, and not good for the cost of the industry.

“But the reality is the one particular area we will continue to see increases is in the current income protection book. We're going to close that book but that book is going to continue to deteriorate,” Mu said.

“We're going to really focus on how we work together to either move clients to a more sustainable product, or how do we manage the inforce book. I think we're going to see a few more years yet of some potential increases on income protection for sure.

“We've seen a far more stable experience on lump sum and we're not expecting that same volatility. Although in trauma, it is an area that you know, the market has seen and is asking whether we need to make some changes ahead seeing the same cycle with income protection.”

TAL chief executive, Brett Clark, said there was “no joy” for anyone when it came to the premium increases the market had seen as it eroded confidence from customers and in the advice process.

Clark said the increases had been a result of increased claims experience and lower interest rates which had not helped the sustainability of the life insurance industry.

“We've seen billions of dollars of losses and then pricing responses have followed. However, we can't be in a situation where price keeps chasing these sorts of industry losses, we can't continue to go on like we've been going on.

“The intervention that APRA [the Australian Prudential Regulation Authority] has made and the changes that industry are making as a result are sorely needed and frankly, long overdue. Now is the time we all must collectively come together to get this right,” he said.

“This is because income protection insurance or disability income insurance in particular is the core risk management and insurance tool consumers use to protect their most important asset – their ability to earn an income – and we have to get this right for them.

“I’m a little optimistic that we may have seen or towards the bottom of the industry losses and that hopefully means less pricing pressure in the future as well.

“But time will tell and we'll see how that plays out with the new products, which you'll all be seeing either now or in the very near future and are going to be an important part of riding the ship around income protection insurance.”

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The new IP products are shocking and won't pay out in many cases. The assumption seems to be that advisers are so stupid they will recommend anything to get a commission. More likely the exodus of risk advisers will continue and wholistic advisers will continue to dump life insurance advice. RIP life insurance industry.

I cant consciously recommend the new products, especially those from Oct 2022.

Insurers are going to want clients in the new (lower quality) IP products so you can already see them planning to jack up the premiums of the existing (quality) products to force clients across.

Then the ones to be blamed will be the advisers... Doomed if you recommend clients retain existing policies they cant afford... but also doomed if you recommend they move to lower quality policies so they can afford premiums. Zero sum game.

Only the head of an insurer would think that jacking up the premiums of good quality contracts while only offering sub standard contracts moving forward is a good thing. We all know they could care less about clients. In 12 months time there will another article where the likes of Mr Mu will be puzzled why new business activity is close to zero.

I love how none of the heads of the insurance companies take responsibility for this situation. They thank the regulator for doing what they should have been doing. As an advisor, I'm inclined to teach my client to self insure rather than rely on insurance companies, who will hikes premiums to force clients out of products when they can't change the terms of the policies. Insurance companies say they understand the advisors, unfortunately they aren't at meetings with clients, or taking phone calls about increasing premiums. The insurance companies claim to be about the insured, this is clearly not the case as this would have been managed better from the beginning.....

Poor underwriting by many life companies has seen the increase in claims.
Add the lack of competition, little, if any product differentiation, LIF legislation, FASEA requirements, increasing premiums and the offer of inferior products being offered, plus Covid and you have the perfect recipe for the life insurance industry to implode.

Life insurance executives have forgotten what business they're in.

Advisers, given the current environment will not want to offer inferior products, especially to new clients, it's not worth the angst and the long term contingent liability associated with risk advice.
For existing clients, the commercial reality is that if the life companies want to continue to rape, raving and pillaging them by increasing premiums by 30.0% p.a. each year or more, then the outflow of premium will continue and yes, the life companies will get rid of those clients but the net effect is that they will exacerbate their claims position.
What a stupid exercise that they've all joined, to participate in.

How about a bit of transparency on this matter?

Actuarial calculations estimated what level of claims in each sector/risk area? How have the actual claims experiences in each area played out? Broad claims payouts can hide a lot of facts and data that would greatly help advisers. Knowing more detail would help advisers to understand where the issues truly are but just as importantly, it would help to clarify how such a debacle has been allowed to occur. Better informed advisers are better able to help clients navigate this transition.

Right now, we advisers are being asked to explain 30% premium increases, on top of 25% increases and suggest reduced cover for the same problems, is a good idea.

How do low interest rates count in all this? Returns have been quite good for years now. Have the investments been that bad?

It's hard to argue a case that doesn't make sense.

The reason there is such reluctance to be transparent is because the underlying driver of premium increases for IP and TPD is mental health claims. Mental health claims are easier to fabricate, exaggerate, and prolong. But the mental health lobby is extremely powerful and will unleash a PR shitstorm on any insurer that dares to question any mental health claim.

All these weasel words about "sustainability" are really just code for "stopping excessive mental health claims by punishing everybody".

Not disagreeing with you at all but given insurers for almost 2 decades have been denying / excluding IP and TPD applications on past mental health grounds for anyone who ever had a bad day - they must have had a whole shed load of claims for (group) cover not underwritten? Perhaps there is a place for a policy that excludes all mental health related claims and priced accordingly? Sadly that's probably to much innovation for our concentrated insurance market who prefer to just lazily jack up premiums or close a book and screw their existing policyholders. This FP practice hasn't written a new policy since 2019 for all the reasons others have spelled out that won't change anytime soon! Industry in a death spiral of their own making.

I think the fact that most applicants with a mental health history were declined or excluded at underwriting stage, yet there has still been an explosion in mental health claims, is an indicator of how many claims may have been fabricated or exaggerated.

Policies with an optional mental health exclusion for a lower cost are the obvious solution to this whole mess. But that would mean higher premiums for those who don't exclude it, and the powerful mental health lobby would play the "discrimination" card. Insurers and regulators would rather punish the silent majority than stand up to a fashionable lobby group.

You know, what I hate about all this.... is that group cover is not affected still can insure 75% and yet the group cover and retail is normally the same company and the regulator didn't think they should address this as well seeing its part of their business which is losing money.

Companies tried to claim insurance premiums going up was because of advisers eg LIF 'Churn' reduced commissions yet all premiums have done is go up not down yet the advisers are now being paid less. honestly its all too hard now, tell them to get insurance advice from Tik Tok. Jane Hume things that is ok. can't see another gamestop pump and dumb schemes issues but now with retirement saving all given via tik tok... You know people that want to give general advice there is a license for that already.

Most companies admitted most IP claims about 90% finish by within 2 years yet now want to insure longer term IP claims at 60% and added a whole much of things to force clients back into work most likely at a lower wage.

I have a level premium on my agreed value IP policy that I took out 12 years ago. I've been self employed for 10 years and 3 years ago I began riding down hill mountain bikes. Where will I find an adviser that will recommend I leave that policy to commence a new one? Because that is not a decision I want to make on my own, I need the expertise of an adviser and the protection of their PI.

These two CEO's may blame claims and interest rates but have either of them taken a pay cut?
These new products are terrible and here's what will happen. Insurers will keep increasing existing customers until they are forced out. Discounts will be offered for the new terrible products. Advisers will be thrown under a bus if they recommended a change so they won't be recommending IP at all.
Lose lose for customers and advisers.

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