Life insurance companies will begin to examine their policy inclusions as well as administration, underwriting and claims costs but are unlikely to reduce their premiums, according to the heads of two non-aligned planning groups.
GPS Wealth, Managing Director, Grahame Evans and Synchron Director, Don Trapnell stated that it was unlikely that premiums would fall in the short term despite calls for insurers to reveal when and how that may happen.
Evans has called on life insurers to reveal the size, scope and timing of premium reductions for consumers, which would demonstrate the consumer benefits of the commission reforms.
He said the likelihood of premium reductions was unknown but the imposition of a universal, standard commission model was a free kick to life insurers and removed competitive tension around the issue of commissions.
Evans, who has worked as a life insurance company director, and was a former head of investments for Tower Australia Limited, said it was more likely insurers would begin to alter the features of their policies, which have been the cause of profitability and affordability problems in the past.
“Insurers have been aggressive in the area of features and exclusions to attract new business but have suffered blow outs in their claims experience and underwriting. Will they fix these areas going forward to deal with their own inefficiencies?” Evans asked.
Trapnell said during the discussion leading to the release of the Trowbridge Report, there was little talk among the parties about insurers reducing premiums and he does not believe it will happen in the short term due to costs associated with implementing the new regime.
“Premiums will not drop on the legacy book of policies as their costings will not change, and on new policies the question is when should insurers make the change,” Trapnell said.
“Three price drops in the three years of the transition period sounds unlikely, particularly as new products will also cost insurers to add to their books.”
Trapnell said while the new regime will deal with churn the removal of takeover terms would tackle it in a far better way, claiming that insurers only claim churn exists when policies are moved away from them and not to them.
He also called for a move away from yearly renewable premiums, stating these also added to the movement of clients between life insurance companies for short-term gain.
Evans said any failure to reduce premiums would throw into doubt the intent of the reforms and the commitment to consumers which was first raised by the report on life insurance commissions released by the Australian Securities and Investments Commission (ASIC) last year.
“The ASIC report was all about the quality of advice and the impact of commissions but it appears this result has been about the benefit to life insurance companies unless the premiums reductions are passed through to consumers,” Evans said.
“If life companies say they can’t reduce premiums significantly then I would suggest that either APRA has been asleep at the wheel by allowing companies to write unprofitable business or, as suspected by many, the whole Trowbridge exercise has been about greater profitability for the big end of town.”
