ASIC signals interest in level premium growth

The Australian Securities and Investments Commission (ASIC) has signalled it will be monitoring the impacts of the changes wrought by the Life Insurance Framework to see whether they drive growth in level premiums.

However, ASIC deputy chair, Peter Kell has told a Parliamentary committee that the regulator is not currently planning to construct some sort of tracker of premium levels across different policy types as part of its review of the changes.

In doing so, Kell acknowledged that ASIC would be heavily reliant on data collected by the Australian Prudential Regulation Authority (APRA) because ASIC had not been a traditional collector of insurance data.

He said there were a lot of influences on the level of premiums in life insurance and one of the issues ASIC was interested in was whether there would be a growth in level premium policies in circumstances where, in comparison to other jurisdictions Australia had a relatively low per centage of level premium policies.

“The issue is: level premium policies are typically a bit more expensive up front but can be more affordable over the longer term; stepped premium policies are cheaper up front but then they increase. It is an interesting issue in terms of how that is explained to the consumer,” Kell said.




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The ship of fools known as ASIC have "no idea" about the life industry.
Starting with paying 80.0% more upfront for level premiums against stepped premiums doesn't consider the following.
1. Most clients don't have enough disposable dollars that makes them willing to pay 80.0% more upfront for the next 8 years for their insurance.
2. Level premiums are not guaranteed to stay level !!
Life companies can increase level premiums at any time and in particular legacy products , if they don't want the contingent liability of those legacy products on their books.
Just ask how AMP increased old level National Mutual IP products by 30.0% recently.
3. If a sum insured indexation factor is built into level premiums, this automatically increases the level premium each year the indexation increase is applied.
This whole issue is a crock !!!

Peter Kell talks as if he's just learning all of this stuff for the first time. Does he realise the life insurers are run so badly in this country that they constantly have to jack up rates on level premium policies because they mis-priced them to begin with and to allow them to subsidise new policyholders in their constant chase of new business targets. Even to the point that AIA have admitted defeat on level premiums and have now brought out Term Level premiums, I guess they feel they might be able to get the pricing right over a 5-10 year period. Peter Kell is completely clueless on anything that's actually going on in our industry.

While I can’t disagree with the broad thrust of earlier comments particularly that level premiums can and do increase, I can speak positively about my personal experience with level premium policies. Back in 2008 I converted (without underwriting) all my policies to level premiums. 100% of my IP and Critical illness policies became level while the other lump sum policies became part level / part stepped. The increase in spend seemed high at the time but looking at the year on year premium projections to age 65 convinced me of the prudence of "swallowing" the level "medicine" back then. Nearly a decade on and middle aged, it was the best decision despite the premium increases passed on by my insurers since. Most years, I have made incremental reductions to my stepped policies and a couple of years ago I stopped accepting CPI increases altogether on all but my IP. In another two years I will have extinguished the stepped policies altogether in line with my reduced need for the cover. My tax agent can't believe how small my IP premium deduction is when he thinks of other clients stepped premium deductions who are my age with similar sums insured. The bottom line is that level premiums work for me because they remain affordable at a stage in my life when my risk of critical illness is greater. I nonetheless believe that ASIC also needs to look at our insurers rather than just Financial Planners recommendations if it expects us to embrace level premiums. Increasing the take up of level premiums requires trust of our insurers and it's clear from earlier comments that this trust is lacking. Insurers need to commit to simplified replacement of cover for policy holders who remain loyal for years but may need to move from super ownership to self-owned cover some day. This need for simplified replacement is particularly so for level premium policy holders and / or when policy series are closed. Currently existing holders become "marooned" because insurers won’t offer replacement without underwriting and wont honour the client's age at inception of their original level policies. I can understand our clients being aghast at their treatment by insurers after years of loyalty when this happens. If ASIC are to achieve their aspirations in reducing churn and creating long-term affordability for consumers it's time they look to our insurers and get them to become part of the solution.

ASIC, if you find a way to force insurers to bring back Whole of Life policies, I will love you till the day I die. Level premiums, increasing cover with profits. A miracle of paper and ink.

When you show the client the savings they can receive. One recent case was $600,000 savings by going Level.

Level premium and level commission is good for the client and your business.

Hi Robert, the value of level premiums is not really the issue here. I write level premiums wherever possible. The issue is that ASIC are clueless as to how life insurers run their businesses and don't understand that level premiums are just as open to rates rises as stepped premiums. When you do your projections of stepped versus level to show clients how many years it will be before the cumulative stepped premium becomes greater than the cumulative level premium do you factor in a rate rise on the level premium? The crossover point is typically at around the 8 year mark, but the reality is that if someone holds a level premium policy for that period they will experience at least 1 rate rise, 2 if they're unlucky, which would shift the crossover point out to 10-12 years. The insurers just shift the goal posts at any point they feel like to subsidise reduced rates on new business so that they can keep the inflows coming. It's a rort.

Provided that I can direct my clients complaint to ASIC when the insurer raises the level premium rate higher than their stepped rates as per AMPs recent rate hike, sure I will write more Level premiums. Whilst I as an adviser understand what a Level premium is, all our clients hear is that their premiums remain level and the pretty graph. When the rerate hits the complaints start and worst of all the clients actually cancel the cover after paying their level premiums for years. True level premiums are a great idea in theory but whilst the insurers are allowed to get away rerating legacy books as they have in the past I have absolutely zero confidence that they are fit for purpose. Mind you I have some level trauma and a small amount of Level Death cover that I know I will likely need into my 60s and 70's but I find that managing sums insured and waiting periods more effective in terms of premium management by helping client save up enough funds to build an emergency fund and repaying debt reduces the need for cover for most people as they get older.

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