Discount life insurance company Pinnacle Life may have problems matching its advertising claims that it will offer a 20 per cent discount on term life policy premiums.
The company which opened for business on Monday is promising to replace existing term life policies issued by other insurers, and charge 20 per cent lower premiums.
While it can easily provide the advertised discounts in the first year when it replaces a policy it will have difficulty matching that promise in future years as it won't know what level of premium the original life office would charge in subsequent years.
Pinnacle chief executive Noel Vaughan acknowledges this problem and says Pinnacle will have to guess what the original life company would charge in subsequent years.
He says Pinnacle will charge "20 per cent less than what we think the AMP (for example) would have charged."
The other potential problem is that the $270 million-a-year term life market is considered highly competitive and mature and premiums have been coming down for a number of years.
Strategy Financial director Graeme Lindsay, who does a comparative of term life policies and premiums, says, "there have been some serious rate reductions" in the past four years. One example he quotes shows premiums have fallen 38 percent since 1991.
Vaughan says Pinnacle will match all conditions, such as having a guaranteed annually renewable contract, but it won't be accepting policies that have add-ons such as critical condition. Also it won't take on policies of more than $500,000.
He says the company is here for the long term and it is aiming to grab 10 per cent of the term life market in five years.
Large life offices spoken to by Good Returns aren't too concerned about Pinnacle's entry into the term life market, and it appears there will be no premium discount war. Surveying Pinnacle Life Editorial
Discount life insurance company Pinnacle Life may have problems matching its advertising claims that it will offer a 20 per cent discount on term life policy premiums.