tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Friday, December 4th, 8:38PM

Insurance

rss
Latest Headlines

Should we be warning consumers about IP prices?

Russell Hutchinson suggests ways to preposition clients for IP premium increases and discusses the product's potential to keep claimants disabled longer. 

Thursday, July 23rd 2020, 10:12AM 1 Comment

by Russell Hutchinson

Russell Hutchinson

The industry average premium increases over the past five years (for the same age of client) for each category of product has been, on average, an increase of about 6% for short wait periods for income protection and about 8% for long wait periods for income protection – up to the point that Partners Life increased their IP premium just pre-Covid.

They added 12% to rates. This is the underlying rate change – the actual increases consumers experienced were plus inflation, plus age-related increases.

It has probably not been anything like enough. In Australia the regulator is so worried, that they have intervened.

Some insurers in New Zealand are less concerned, but not all.

We know that the current product is both under-priced and the terms are probably too generous. What rate of increase might a client expect over the next five years?

For a client taking out income protection there is, arguably, a duty to disclose this situation, and possibly to illustrate that – alongside expected rate for age increases.

Imagine a case with a quoted premium of about $250 a month for a typical 40-year-old applicant.

A simple statement can be added to the price: "The quoted premium of $250 is likely to rise by 88% to about $470 over the coming five years."

That is a clear statement which underlines the challenge of sustainability in dollar terms for the consumer.

A second approach, is to give the sustainability warning only in cases where a fixed proportion of income is breached.

For example, in the case above, an income of $130,000 would see the annual premium – of about $3,000 – sit fairly comfortably at about 2% of income.

In five years’ time it would be about 4.3% of income – more than most households would spend on insurance as a whole, let alone just income protection.

If APRA and most reinsurers are right, every income protection product that offers a long-term benefit on fixed policy terms is a major risk – and a risk not fixable with a price increase alone.

This is because the incentive to return to work once a claimant has been disabled for a long period of time decline below the payments made by the product.

In that sense, there is a dimension to examine the problem of incentives and consumer harm. It has to be considered that the product itself may be keeping people disabled for longer.

Tags: Income Protection Opinion Russell Hutchinson

« How housing affects the market for insuranceIt starts with governance »

Special Offers

Comments from our readers

On 30 July 2020 at 3:24 pm Murray Weatherston said:
Hi Russell
Does the average 40 year old applicant really earn $130,000.
The same $250 premium policy (assuming cover did not exceed 75% of income) for a 40 year old earning 80,000 would be 3.75% of income rising to over 7% - i.e. even less affordable.

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
Insurance Briefs

Fidelity Life’s transformation continues with top culture award
Fidelity Life's tech team pick up a gong at IT awards.

Fidelity Life dials up new tech
Fidelity Life says its new telephony solution deliver immediate benefits to customers and advisers.

AIA pimps up its Quick Quote calculator
AIA has enhanced its Quick Quote tool, which it says provides an opportunity to attract new, more qualified customers.

Southern Cross to bring mental health programme to kiwi kids
The programme aimed at helping kiwi kids navigate life’s ups and downs will soon be available free of charge to any primary or intermediate school in New Zealand.

News Bites
Latest Comments
Subscribe Now

Mortgage Rates Newsletter

Daily Weekly

Previous News

MORE NEWS»

Most Commented On
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
 
Site by Web Developer and eyelovedesign.com