The regulators calling out issues around risk premium increases – citing complaints from consumers among other factors – is the clear winner of the Riskinfo Story of the Week…

APRA and ASIC have released an open letter to the CEOs of all retail life insurers – past and present – on serious concerns over the extent of premium increases on life insurance policies.

Citing complaints from consumers and reportable situations from insurers in relation to premium increases in retail life insurance policies, the regulators have tabled their concerns that some life companies:

  • Have not appropriately applied premium increases to retail life insurance policies, particularly level premium policies, in accordance with the policy terms; and/or
  • Have not acted in accordance with the reasonable expectations created through the relevant disclosure and marketing material

The letter notes these concerns indicate that some life companies do not have effective systems, processes and controls in place to ensure:

  • Clear and effective disclosure has taken, and continues to take, place
  • That all premium changes are made in accordance with the applicable documents that form the contract between insurer and consumer
  • That marketing material and other documents are not misleading
  • Continued compliance with their legal obligations, including to act efficiently, honestly and fairly

With regard to existing policies, including legacy products, the regulators request all life companies that write, or have written, retail life insurance policies to review past:

  • Premium increases, including for legacy products, to ascertain whether increases or re-pricing decisions have been applied in accordance with the applicable policy terms; and
  • Disclosure and marketing material to determine whether policyholders have been provided sufficient clarity about future premiums, including the way in which premiums may change over the life of the policy

Looking to the future, the open letter notes life companies should:

  • Consider the appropriateness and clarity of disclosures and marketing material as they relate to future premium increases
  • Review existing product labels, considering the appropriateness of describing a product as ‘level premium’ if there is not a high degree of confidence around premium stability
  • Consider how to manage the reasonable expectations of policyholders around premium increases in an ongoing manner

Insurers have been ‘requested’ to respond to ASIC by 31 March 2023, outlining:

  • Any findings in relation to their review of past premium increases which may not have been applied in accordance with the applicable policy terms
  • Disclosure and marketing material which may have misled policyholders about the premiums they would have to pay
  • If any issues of concern were identified, what steps are planned to report, rectify and remedy these issues
  • Their proposed actions to meet regulator expectations about the design of future product offerings

Take this link to read the open letter issued by ASIC and APRA today to all retail life insurers, both past and present, which was signed by Sean Carmody, APRA’s Executive Director: Insurance Division and ASIC’s Senior Executive Leader: Insurers Financial Services and Wealth, Rhys Bollen.

The letter notes ASIC will arrange meetings to discuss individual responses in April-May 2023.

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7 COMMENTS

  1. I’m pretty sure it was APRA that broadly gave the Insurance Companies the go ahead to increase base premium prices to avoid a threat of going out of business due to the past, ‘conservative approach’ of their actuaries to the potential for a rising number of claims relative to incoming premiums.
    They took them at their word that’s for sure!
    There it is then

  2. “Have not appropriately applied premium increases to retail life insurance policies, particularly level premium policies, in accordance with the policy terms”

    Dearie me !

    Apra have certainly been asleep at the wheel. AMP purchased National Mutual in 1999 or thereabouts knowing full well as a result of due diligence pre-purchase investigations that the level premium products of National Mutual had not been increased when stepped levels premiums went up, over many years. AMP chose not to act immediately and caught up a year or so before AMP sadly exploded, imposing 35% increases in level premiums overnight. Followed by mass cancellations!

    Just before AIA purchased Comminsure, Comminsure level premium products were suddenly hit with a 25% to 35% increase in premiums. How could that be: what we as advisers were always told was that if stepped premiums went up because of claims experience, then level premiums would follow proportionately, but the relativity between stepped and level premiums would always be maintained, thus still providing savings over the long-term.

    And yes, I know that returns on conservative investments for insurance companies have been low, and those returns were the basis of the calculations behind level premium contracts, provided the policy was kept for 20 years or so. But CBA, the owners of Comminsure, in particular apparently told Comminsure NOT to increase level premiums because the CFP would be exposed to cancellations, because many of it’s in-house advisers were selling level premium products to just about every customer. That was the info from since departed Comminsure employees, but I have no proof.

    The bottom line here is that Apra are negligent on many levels in life insurance. Unlike its predecessor the ISC, the boffins at Apra are not in constant day-to-day touch with the life insurers that they regulate. They are not in a position to get intel on what’s happening in a life insurer, because they rely on the six months capital adequacy & insolvency reports, done by the consultant actuary, which apparently are designed to predict disasters, but just before they happen.

    A smart insurance regulator like the old ISC had a program of keeping in touch with advisers, insurers and anyone else in the loop. The former ISC Commissioner Tig Melville was a fabulous networker: here in Canberra he would attend at least two ALA/AFA functions every year,and was well known for his “how’s things” calls to certain senior advisers in the town. For example, by talking to general insurance brokers who were reporting unusual claim delays with claims on the old FAI General, the ISC was able to intervene before FAI general insurance came close to insolvency. Capital was quickly raised.

    And then of course there is the complete Apra overreaction on IP contracts, and I’m given to understand from the odd truth teller in life insurance companies that “consultation” with the insurers on proposed drastic changes to IP contracts was, at best, tokenish. And now of course we all know that it was not until the Institute of Actuaries produced its famous paper on introducing sheer nastiness to IP that any IP template became available for insurers, who had all seemed to go off in different directions, at least initially. And I’m told that neither the AFA or the FPA were involved in any stakeholder consultation from Apra about those changes.

    I’m sorry, but Apra are a joke. These guys could not run a Saturday sausage sizzle at Bunnings, with everything provided and the Bunnings template!

    • An alternate view. The life companies held off increasing level premium rates while they were increasing stepped. They held off as long as they could. When they couldn’t hold off any more (due to rising claims costs), it’s a larger increase that comes through. This is regrettable and not ideal. But is it surprising? I don’t believe level premiums increased more than stepped over the last decade?

      APRA spent a few years asking the life companies to fix DI products and their approach to risk management. APRA was left with little option in the face of increasing losses and life company inaction. And the life companies were essentially telling APRA they couldn’t fix the problems without their help.

      At least one of the advice bodies was engaged by the actuaries institute well before they published anything.

      • Sounds like you are/were on the inside, friend. Part of this problem is APRA really are like the Reserve bank- they have very blunt instruments ONLY, and that results only in blunt force trauma. Hence the 2021 IP changes. My point is this: unlike their predecessors the ISC, Apra live in a lofty castle. They are not out connecting with their customers i.e. lunching with the life insurers, and advisers, or for that matter the general insurers. When they started in 2004, the insurance regulator part of the ISC that became part of Apra, was moved by Costello to Sydney, ostensibly to put them in the middle of the life insurers in the canyons. A lot of staff resigned. The concept of “close cohabitation”, invented by Costello, failed !

        The second problem of course is that all of the life insurers are now driven by shareholder value, with CEOs constantly driven to upscale market share, and of course their bonuses. Just about every life insurer has the internal conflict between marketing, or as they like to call themselves “product”, and the actuaries who cost the product. While we have shareholder companies, that’s an unresolvable conflict, because “product” will always want to be able to get their product in the right “quartile”. Charging what it’s worth is not something they like very much in the product area. Hence the years of adding features and benefits to IP contracts, without adjusting the premiums, and of extreme importance, educating advisers. I can’t remember the last product event I went to where an insurer justified the changes to the contracts and the premiums.

        On the evidence today, as far as I’m concerned, Apra has ‘ walked softly, talked softly and carried a virtual stick’ to misquote Theodore Roosevelt

  3. So now APRA and ASIC have become defacto actuaries and underwriters to interfere with free business. Customers will decide if the premiums are affordable or not.
    Where are ASIC and APRA when the the power companies just raise the prices and hit EVERYONE rather than just the insured? Customers have no real choice to decline heating, electricity or gas!
    As usual, those sitting in glass houses who are on massive salaries!

    • Yes, of course, clients will decide if premiums are appropriate. HOWEVER, if they deem they are NOT then they cancel – easy to say BUT . . . then and are without protection. THAT is what this is all about!

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