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Partners Life tells advisers more about the ‘claims squeeze’

Six months after telling the market it was raising premiums by 6%-7% because it had paid out “materially more” than expected in claims, Partners Life had shed more light on why and how this was done.

Monday, July 18th 2022, 5:45PM 9 Comments

by Jenni McManus

Kris Ballantyne, Partners Life chief marketing officer, says after reviewing and analysing customer and product data built up during its 11 years in business, the company had been able to identify pockets of risk where customers were being under-charged in comparison to the number of claims they were generating.

“Effectively, these customers were being subsidised by other customers,” Ballantyne says. But the firm now has the data and tools to “reshape” its pricing and set premiums at a level that’s fairer for all customers. “This is a reshaping,” he says. “It’s not a price increase across the board.”

Premium will now depend upon customer profiles and for some, the increase will be more “pertinent” than for others. For example, 20% of policies have seen increases of less than 10% and only 10% of policies faced the steepest premium rise (20%).

“But even in the most extreme scenarios, we’re not talking about the difference between a Toyota and a Maserati. We’re talking about a relatively close gap. It means that Partners Life is sometimes at the top of the market but not by an insurmountable percentage.”

Being able to compile and use its own data has made all the difference, rather than having to rely on actuarial data from reinsurers and other global sources which doesn’t necessarily relate to specific Partners Life products or its demographic mix.

Ballantyne says both regulators have been asking insurers to address cross-subsidisation. And back in December 2021, when the premium increases were first announced, Partners Life said cross-subsidisation of high-claiming pockets of customers was “inherently unfair”.

As an example of the anomalies it can throw up, a company video made late last year for advisers referenced a chart showing the ratio of actual to expected female trauma claims.

Anton Gardiner, then Partners Life chief actuary, said claims from some age groups within this female cohort were much higher than expected – for example, women aged 40-49, where 84% of trauma claims were for cancer and of these, 62% were for breast cancer.

“In fact, breast cancer accounted for 52% of all trauma claims in that age group,” Gardiner said. “We [were] simply not charging enough for the number of claims were [were] seeing.”

Now working as chief of product and pricing, Gardiner says claims are the biggest component of the overall premium cost – between 50% and 60%, and even higher for medical cover.

The next biggest component is commission, both initial and renewal; Partners Life pays one of the highest renewal commissions in the market (10%). The final (and much smaller) components of the premium are operating expenses and profit, with profit being the smallest, Gardiner says.

Claims is the only area where costs are not relatively stable. “If claims are increasing and the other [components] remain the same, the profitability of us as an insurer gets squeezed. That’s not good for us or for the industry.”

Nevertheless, says chief actuary Kate Dron, the premium increases have not been simply about increasing profits. In fact, she says, it’s the opposite.

“We’re looking at how we can maintain profitability but also [ensuring] that we’re charging a fair price to our customers. When claims increase, we’ve got to look at adjusting our premiums to reflect that and how we can do it equitably across our customers. Increasing profitability is not an outcome of these price increases.”

Gardiner says while Partners Life decided to tackle the problem head-on, and accepted that for a time this might make it less competitive, other insurers will eventually have to make the same sort of adjustment.

Dron describes it as a “claims spiral” when others start attracting the sort of customers that Partners Life has identified as higher risk.

“It won’t necessarily happen to us because we no longer have those pockets or if we do, we’ve priced for it appropriately,” she says. “It’s taken us 11 years to get here but we’re very comfortable with where we’ve landed – that the shape of our pricing curve is now very reflective of where we expect our business to be [in the future].”

She concedes that external factors outside the control of Partners Life – such as new medical innovations or diagnostics – could impact future pricing but says such things will affect the whole industry, not just Partners Life. “But in terms of our own portfolio and treating our customers fairly, we’re comfortable with that.”

Pricing will continue to be reviewed every year but, barring “externalities”, there should be no need for big adjustments, Dron says.

Tags: Partners Life

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Comments from our readers

On 19 July 2022 at 12:56 pm Fair deal said:
Higher increases when you claim more in your category but no incentive to reward people who claim less and are healthier than the "category" they happen to fall in. You pay the highest levels of commissions, upfront and ongoing - but believe this results in good customer outcomes. I am not saying advisers should not be paid, but trading at such high levels of premiums increases on your policies, yet increasing commission percentages over time, plus claims ratio increases - surely don't read well. What you will find is that healthy people will leave, because prices will increase exponentially, and financial advisers will need to make decisions based on what is best for the customer or pressure from the client to move. What is left is sick people who can't move and an aging book, which in turn results in higher increases.
On 19 July 2022 at 5:14 pm stan the man said:
Claims spiral is commonly used and a good point.

Wonder if a claims spiral can also occur if a company puts up premiums significantly, competitors do not follow (competitors may have had more prudent underwriting in the past than the company who put up prices) and then the price rise company is impacted by losing “healthly” customers & being left with more than its share of customers who have become unhealthy since the original underwriting (who cannot move due to underwriting terms of alternative insurers)?

On 21 July 2022 at 1:42 pm Do what is right said:
Does any quality adviser take Partners Life seriously?
On 22 July 2022 at 4:40 pm m mead said:
Chur Partners for the reasoning.

Wonder if underwriting approach drove the claims and if this applies to other manufacturers.
On 25 July 2022 at 11:11 am Barbie said:
Do what is right, why would they not take Partners Life seriously, would really like to know?
On 26 July 2022 at 8:19 am Matron said:
@Barbie it's their 'secret sauce'.
On 26 July 2022 at 11:15 am Murray Weatherston said:
Just as well Partners have not become a listed company yet. Their 2022 financial result was a shocker.
I wonder "how amused" Blackstone are?
On 26 July 2022 at 1:12 pm Lifer said:
@stan the man, I seem to recall that around 2011-2012 or there abouts, AMP upped their premiums above the rest of the market on the basis that they believed the tax changes to life insurance would mean that other insurers would follow. They didn't. The result was, healthy, price sensitive clients moved to less expensive insurers, while the unhealthy remained with AMP.
On 4 August 2022 at 10:26 am JPHale said:
I find this statement interesting. "Anton Gardiner, then Partners Life chief actuary, said claims from some age groups within this female cohort were much higher than expected – for example, women aged 40-49, where 84% of trauma claims were for cancer and of these, 62% were for breast cancer."

Back in 2014, Asteron Life published its claims experience from Gen Re; that report showed that 85% of female trauma claims were for cancer, and 63% of those trauma claims were for breast cancer.

So I'm really struggling to understand how this is a surprise to an actuary when the bulk of the adviser force at the time was briefed on this basic stat and people have come and gone from the organisation that would have known this??

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