Majority of Advisers Say They Should be Writing More Level Premium Business

By a margin of two to one, Australia’s financial advisers are saying their practice should be writing a higher proportion of level premium life insurance business.

As we go to press, 64% of those voting in our latest poll have agreed they should be writing more level/hybrid premium policies for their clients.  Exactly one third (33%) believe they currently have the balance right between stepped and level premium business, while 3% are undecided.

This question is being asked within the wider debate over long-term life insurance industry sustainability, a topic that we have covered in detail in the June edition of riskinfo Magazine.  Key thought leaders within the industry agree that a sustainability issue does exist and some have raised questions over whether the current dominance of the stepped premium option is a factor within the sustainability debate.

Feedback from advisers to this poll question has raised some interesting points.  One adviser has pointed out that he was initially attracted by the concept of level premiums, but said that some of his level premium clients were still ‘slugged’ at renewal time with increases (eg CPI increases based on age at policy anniversary). This adviser no longer writes level premium business.

Countering this example, however, is the risk store’s Sue Laing, who makes the point that advisers must manage their clients’ expectations in this area and to educate them properly about the possibility of increases in level premiums due to discretionary features enhancements and/or CPI increases.

One adviser made the important distinction that stepped premiums would present easily the better option in circumstances where the client’s cover needs were shorter-term, while another adviser raised two excellent points:

1. Do level rates really make insurance more sustainable as suggested in the article? You could argue that clients who hold their cover long and therefore are more likely to claim would actually impact insures more than churn. An extra 5 years of premium doesn’t make much difference if you need to pay a claim on the policy.
2. The fact that level premiums make you beholden to the insurer you chose originally isn’t necessarily a good thing… also the cumulative pay off for level is often so far into the future that the client at a younger age would have been better off with more cover at a time of high need/low risk rather than more cover at a time of lower need but higher risk.

You could argue that clients who hold their cover long and therefore are more likely to claim would actually impact insures more than churn

This same adviser also suggested our poll could have been designed better:  “Why isn’t a hybrid of both a 3rd option rather than an adjunct to level?”

We note with interest the similarity of this poll result with a similar poll question we put to advisers more than four years ago.  In February 2009, we asked whether advisers would be writing more level and/or hybrid premium business in future.  At the time, 63% of advisers indicated they would be writing more level and/or hybrid premium business, compared to 30%, who said they would not.

While the two poll questions aren’t exactly the same, they relate to the same issue, and we wonder whether much has changed in the four years between these two polls.

We are not advocating that any change is needed; simply that there seems to have been little movement in this area in recent times.

Our poll remains open for another week, so please add your vote and make your voice heard…