APRA wants life insurers to provide greater transparency, improved product design, and more sustainable pricing practices to reduce surprise premium rate hikes for consumers.
In an open letter to insurers published last week, APRA said that over the past five years policyholders have seen significant premium increases – driven by:
- Age-based pricing
- Cover indexation
- Rising base rates
Many consumers were caught off guard by rate rises, according to the regulator, particularly those with level premium products.
In response, ASIC and APRA launched a joint initiative in 2022, asking insurers to review:
- Historic premium increases
- Their marketing materials
- Policy design
A follow-up review in 2023 and 2024 assessed how companies had responded. One major area of concern for was insurers’ right to re-rate. It appears some firms raised premiums without clearly defined contractual rights to do so.
…regulators noted product innovation remains limited…
Following regulator criticism, several companies refunded overpaid premiums and revised their policy wording to make re-rating terms more transparent and fair. Some replaced alleged vague disclaimers with clearer explanations of how and when premiums can change.
Marketing
Insurers’ marketing practices also came under scrutiny. The longstanding use of ‘stepped’ and ‘level’ premium labels was found to be misleading by the regulator.
In a recent report, APRA states life companies have adopted new terminology – namely, ‘variable premium’ and ‘variable age-stepped premium’ – that are designed to more accurately reflect potential higher premiums.
These changes, states APRA, have been accompanied by improvements in disclosures, quotes, and renewal communications to policy holders.
APRA also said product design saw modest, but important, progress, and that while some new products offer more predictable pricing or customisable premium options, regulators noted product innovation remains limited.
Concerns
ASIC and APRA also highlighted their disquiet about duration-based pricing and temporary discounts, which can lead to premium increases in later years. While most insurers have updated disclosures to better explain these pricing mechanisms, ASIC says some explanations fall short of expectations.
Nevertheless, ASIC and APRA have welcomed the improvements to date, but state ongoing supervision will continue.
According to the latest figures from APRA, Australians paid more than $9.4bn for life insurance obtained through financial advisers in the 12 months to December 2024.
Click here to read the full APRA statement.
