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Some DI premiums up more than 40%

Research from PlanTech Consulting shows some disability income protection policy premiums have risen by 40% in the past two years.

Wednesday, May 1st 2002, 2:16AM

by Louie Dimovski

Back in the year 1999, many within the risk insurance industry began to express grave concerns over the profitability of the disability income market as life companies and, more specifically, re-insurers began to take note of the ever-falling bottom line.

Many life companies were offering liberal definitions and generous value adding benefits at relatively low premiums in an effort to gain a marketing edge in what is a fiercely competitive New Zealand disability income market.

However, as the number of long-term disability claims continued to rise, it became evident that the low premium levels could not be sustained for much longer and most companies would have to significantly increase their rates in order to remain as an on-going concern within the market.

In fact, some within the industry were predicting premium rises anywhere up to 40% over the following years.

A quick glance at premium trends, graphed below, over the past two years will show that most life companies have been able to constrain premium increase to around a maximum of 10% to 15%.

American International Assurance (AIA), who provided one of the most highly competitive disability income protection products on the market at a ridiculously low premium, on the other hand, could not cap their premium increases to a similar level.

As AIA’s claims experience deteriorated, the life company had no choice but to take on a more responsible approach of pricing their products, which involved a premium increase of 25% to 40% for a majority of their insured classes.

As a result, AIA now continue to provide a quality disability income product but at a price that aptly reflects the liberal provisions and benefits on offer, which should improve their profitability and, hopefully, provide a more stable price structure for their new and existing policyholders.

The following data tables has been extracted from PlanTech’s Risk Researcher software and illustrates some examples of the disability income premium increases implemented by various life companies, over the past 2 years.

Male, smoker, age next birthday 30, white-collar clerical/admin.

Waiting Period of 60 days, Benefit Period of 5 years and a monthly benefit of $2,500.

Underwriter

Benefit Type

Premium change

AIA (New Zealand)

Agreed

Up 40%

AIA (New Zealand)

Indemnity

Up 41%

AXA New Zealand

Indemnity

Up 8%

Fidelity

Agreed

Up 8%

Royal & SunAlliance

Loss of Earnings

Up 9%

Sovereign

Agreed

Up 7%

Sovereign

Indemnity

Up 7%

© PlanTech Consulting Group

Male, non-smoker, age next birthday 40, white-collar professional.

Waiting Period of 30 days, Benefit Period of ‘to age 65’ and a monthly benefit of $8,000.

Underwriter

Benefit Type

Premium change

AIA (New Zealand)

Agreed

Up 27%

AIA (New Zealand)

Indemnity

Up 27%

AXA New Zealand

Indemnity

Up 10%

Fidelity

Agreed

Up 29%

Fidelity

Indemnity

Up 15%

Royal & SunAlliance

Loss of Earnings

Up 10%

Sovereign

Agreed

Up 15%

Sovereign

Indemnity

Up 15%

© PlanTech Consulting Group

Louie Dimovski is a researcher with the PlanTech Consulting Group

Louie Dimovski is a researcher at PlanTech Consulting Group (www.plantech.com.au). PlanTech is a developer of comprehensive insurance comparator – Risk Researcher.

« Sovereign's three-legged medical campaignLetter: AIA disputes PlanTech's findings »

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