Retail insurance indexed cover cutting clients’ wealth

With the cost of financial products under the spotlight, new research shows that retail insurance cover customers could be “seriously damaging” their wealth through inappropriate indexation of premium costs.

Rice Warner’s Retail Insurance Survey, which covered 86 per cent of the in-force retail insurance market, found that the indexed premiums structures on the package of benefits typically suggested by planners often meant their clients lost out.

“The dominating premium structure remains stepped premiums, which generally increase each year through age increments and may also be indexed through inflation,” Rice Warner said. “Often, life companies use a factor of five per cent for indexation even though this is double the underlying CPI increase.”

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Graph: Premium projections as a percentage of projected salary

Source: Rice Warner

Unlike default superannuation members, retail customers would have been through a full advice and underwriting process, meaning they would be expected to be aware of premium costs and their insurance needs.

The question then would become, Rice Warner believed, how customers, being fully aware of the cost at the outset, could control or manage increasing premiums, especially over the medium to long term.

The research house suggested that the retail life product itself could need to be redesigned to have a better shape for how sum assureds change over time.




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Stepped wouldn’t be as popular if the thieving insurance companies released more true-level products and stopped repricing their books every 12 months. Had a client who was politely informed that his level IP cover with CommInsure had gone up 14% a little while ago.

What a joke, no wonder the risk sector is in the doldrums.

Have just placed personal risk insurance for a 30 year old male.
As part of the premium analysis process we looked at Level versus Stepped premium options both initially and compounded over time to assess where the total premium benefit would sit based on age.
The Income Protection Insurance Level premium option for a 30 year old was only going to begin offering a longer term benefit after 23 years and the Life and Trauma Insurance after 19 years. This is simply untenable.
The initial Level premium in the first year was almost double the Stepped premium, completely removing the affordability for the 30 year old to implement the insurance urgently needed.
The insurer is a large, well known company and of course, does not offer a guarantee that the Level premium rates will NEVER increase.
Level premium insurance should be exactly that...Level from commencement to expiry other than the insurer being able to index the policy fee or increase the stamp duty on certain products if required.
No rate changes for the life of the policy....GUARANTEED LEVEL.
Not "TRUE LEVEL"......that actually is able to be increased if the insurer wishes.
This is misleading terminology and marketing spin.
Other than that, how can it possibly be accepted the adviser demonstrates to the client the comparison between a Stepped or Level premium option, but then have to clearly identify that the Level premium rates can be altered at the insurers discretion at any time and as a consequence the client may never realise a long term benefit from opting for the Level premium option at all.

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