Policy cancellations at multi-year high

Retail life insurance policy cancellations have been increasing over the past few years and are now at the highest level in over two decades, according to research from Plan for Life. 

Risk lump sum - which covers term life, total permanent disability and trauma products - policy discontinuances are currently peaking at 16.7 per cent for the year ending 30 September 2013, which is the highest rate in over 20 years. 

Policy cancellations in risk income, which includes income protection and business expenses products, are similarly at a multi-year high and also stand at 16.7 per cent - a rate last experienced 11 years ago, according to Plan for Life. 

“The discontinuance rates of many of the leading risk income providers were fairly closely packed around the average; however National Australia/MLC (20 per cent) and AMP (17.7 per cent) were two companies to record higher rates, while BT Financial Group, Zurich and OnePath reported lower ones,” the company said. 

AMP and NAB were among product providers to report above-average rates of policy cancellations in the risk lump sum area as well, joining CommInsure and Macquarie. 

Group risk discontinuances, on the other hand, tended to be much more volatile than those of the individual risk markets, particularly at an individual company level, according to Plan for Life. 

“They reflect the turnover in superannuation fund group risk mandates from ongoing remarketing exercises that are regularly carried out every few years,” the research house noted. 

“Consequently any resultant individual mandate losses are often relatively large [with] sudden resulting in jumps in the corresponding discontinuance rates.” 

Nevertheless, overall policy cancellations over the last 12 months were relatively subdued at 8.2 per cent, compared to their long-term average rate of around 14 per cent.