Income protection premiums are set to soar by up to 50 per cent as financial planners and their clients continue to pay for the mismanagement of life insurance companies, according to Simon Swanson, managing director of listed wealth management company ClearView.
Swanson acknowledged that the life insurance industry was being hit with the highest lapse rates in a decade, compounded by a surge in claims, but said the industry’s structural and cyclical problems could not be fixed by simply raising premiums and pushing consumers to accept level premiums. Similarly, it was unfair of life companies to ask financial advisers to switch to level commissions.
He said life companies that were raising premiums by 40 to 50 per cent on inforce portfolios but not repricing premiums on new business were forcing advisers to “correctly” switch clients into more competitive, alternative policies.
“It’s not churn, but it’s interpreted as churn and it’s the fault of the life insurers,” he said.
“Financial planners are getting calls from their clients asking what this increase is about, and the adviser must then go and get another quote. They then have to move the client into a new product that’s around 20 to 30 per cent cheaper.”
Swanson called for an end to the cross-subsidisation of term life insurance and income protection, saying that the revenue and profits from term insurance had held up life companies and masked the losses or poor performance of income protection for too long.
Consequently, insurance companies were campaigning to push advisers and their clients towards level commissions and level premiums as a way of curbing lapse rates.
“Financial advisers are being made to pay for the incompetence of life companies and their senior management, who have been unable to manage the pricing series and who can’t rationalise their portfolios of products and services,” Swanson said.
In August, ClearView reported a 17 per cent drop in underlying profit after tax of $16 million for the full year to June 30, 2013, with growth in life insurance sales and inforce premiums offset by negative claims experience.
Life insurance sales rocketed 273 per cent to $19.4 million for the year, while inforce premiums rose 41 per cent to $62.1 million.
Swanson said ClearView would continue to stay out of the group insurance market, which had contributed to the underperformance of its competitors.
“Group insurance continues to fail the fundamentals of insurance, which is underwriting,” he said.
“Group policies have far too-generous policy wordings and make it far too easy for people to get cover, and the life companies in that space have paid the price.”
