Risk advisers need to make clear insurance expectations

Risk advisers need to make it clear to clients that level premiums are not a guarantee and what they are to expect with their insurance product so that they are not shocked when their discounts expire, according to life insurers.

TAL chief executive, Brett Clark, spoke on a panel and said level premiums were an important part of the insurance market and that customers needed to understand it was not guaranteed like step premiums.

“I'm really sensitive to the issues that advisers have had to deal with some of the pricing increases around level premium, but the distinction is that level premium does not mean guarantees it means a different pattern of premium payments over time and in many cases for long-term life insurance customers at an appropriate premium pattern,” Clark said.

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AIA chief executive, Damien Mu, agreed and said the Australian market did not have scale on level premiums, which was needed for insurance pools to work.

Mu said the industry needed to look at how to bring shorter-term level term premium products to market such as five, 10, or 15 years that had a component of level and stepped as people’s needs changed over time.

Zurich life and investments chief executive, Justin Delaney, said advisers needed to help tackle the “bill shock” customers received after their first-year discounts expired.

“There’s no doubt that over the last few years price has become more important and how new business flows have been attributed across the market. I think the importance of that first-year price, unfortunately, has become a great determinant of placement and that’s helped drive some of the discounts in market,” he said.

“From an advice perspective, particularly if the customer has a clear view as to what that sort of three, four or five year projection looks like – that's really what we should be focused on.

“I can't see necessarily not being in a customer's interests if they are getting a better deal in that sense. There's no doubt that's something we need to tackle because that bill shock – particularly because we know is an important consideration for many customers – particularly if they weren't aware of that being an outcome.”

MLC chief life insurance officer, Michael Rogers, said discounting in the first year needed to be thought of in the context of what the client wanted to achieve and the sustainability of the product.

Rogers said while the previous approach to premium increases was clearly unsustainable the industry should not discount the role of offering better pricing for new customers where there were quite different product designs.

“Obviously, where a product design that’s delivered to the market at a lower price and we would pass that on to our customers. But again, we need to consider all of that in the context of certainty and sustainability around claims, payment ratios and all the other issues that our actuarial colleagues factor into pricing,” he said.

Rogers said after that, the industry needed to figure out how to easily move an advised client to a more contemporary lower priced product.




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For years and years AIA said they were the only TRUE level premium offer. Remember that Damien? You were there then. I have emails and flyers here to prove it. Now you turn around and say the complete opposite. Its no wonder we are so angry! Our trust in you guys is gone. Don't offer level premiums if you cant cover them, its so simple! These guys are the ones that have stuffed this risk industry, and they still think first year discounting is the way to go! You encourage us to churn. Well no, no more product advice, just on the strategy let the client go to whoever they want to. I don't want to hassle of placing business that is just a liability for me and my business. They can go to iselect to get the cover. Oh bill shock, no sheet sherlocks and its all your fault. You guys can pat each other on the back for being at the helm whilst this industry was completely demolished. Put that on your linked in page. Very good job. It proves the fact they only care abut new business inflows. Geezuz someone give these guys a ethics exam before its too late!

An unspoken, but clear, issue with providing insurance advice in Australia is the risk of being lectured by the people in charge of the whole, unconscionable, unsustainable mess.

It appears that one of the primary attributes required of an insurance executive in Australia is the ability to find anybody else to blame for their own mistakes.

It's never their fault, you see, they're just the victims that were forced into selling mispriced policies at unsustainable discounts because of, well, take your pick:
- Ratings houses
- Advisers
- Competitors
- Clients and their unreasonable expectations
- Governments
- Regulators
- Investment advisers
- Doctors
- Literally anybody else

And because of their poor status as life's real victims, it's vital that they continue to receive all of the bonuses, entitlements and payments that is their due.

This article, this whole narrative, is like having somebody drive their car into a stop sign only to turn around and blame the tow truck driver.

One final question - just how many billions does an insurance company have to lose before there are real consequences for the people in charge?

$7.346b

I'm not sure why any adviser has to explain the loss of first year premium discounts to clients.
Hasn't it been mandatory for advisers to show comparative premium tables on a year by year basis as well as compare Stepped V's Level premiums over time as a guide to what a client may expect in relation to future premiums.
That is unless, the Life companies decided that whatever premium projection an adviser illustrated for a client to make an informed decision,....wasn't worth the paper it was written on.
None of you have any morality nor do you care about the client or the adviser who trusted you with their client.

It comes as no surprise that you are all disciples of the "Mushroom" principle.

I can't help wondering why some government hasn't mandated that every life company should highlight in their year by year projections for clients to make an informed decision , why you are not required to say,....
" that in any 1-3 year period, we may increase your last premium between 30.0%- 100.0% ,.....at our discretion."

Because, then it would beg the question, why would any client want to enter a life insurance contract under those terms ? Or better still, why would any adviser think that's a good option for their client ?
Isn't that what happens now without the life companies declaring their intentions ?
And you wonder why the industry is in a parlous state !

Just forget level premiums. I used to push them hard, and for 7 or 8 years they worked well, but now every single client I have on the books would have been better off with a stepped premium. I've got clients with level premiums going back 15 years and I can still get them a decent saving today by replacing that on a stepped premium...just think if the cumulative premium they've paid over that time too. OnePath at least did the right thing and pulled level premiums on new IP policies, admitting that it doesn't work.

We understand that level premium is not guaranteed to be level for ever, although as pointed out, AIA was meant to be just that for IP. However no one would reasonably ever expect a 1 year increase of 72.5% on a level premium, as BT life has inflicted on many clients.
Is it any wonder that I and many other planners have decided that life insurance advice is no longer worth the effort. And I started as a life agent 28 years ago. Now I try and avoid it like the plague.

Those in charge of the industry need to have a serious think about what they have gradually destroyed. First year discounts simply should be banned by APRA as the starting point.

The hardest realisation for advisers is that these people really have no idea what they are doing and worse lack any morals whatsoever. The trust between advisers and insurers I don't think can ever recover.

I have exited the industry after 43 years, but it was never my understanding that level premiums couldn't be increased. True Level meant that CPI increases were based on the life insured's at commencement. So I disagree with anyone whom thinks differently. Although I always gave my clients first (& second) year discounts when on offer (how could I not under best interest) I have always disagreed with them. A blatant marketing ploy by Life Offices to get people on-board. It is these blatant marketing ploys that make all the excuses now from their CEOs seem hollow.

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