Life Insurers Profits Up But You Still Pay More
SYDNEY: 07 October, 2015 – The recent reporting season has revealed that, despite crying poor, life insurers’ profits are still increasing, according to lifeinsurancedirect.com.au.
LifeInsuranceDirect.com.au CEO Russell Cain said, “AMP reported one of the highest increases in profit – a 33% rise in statutory net profits, as at 20 August – and they’re not alone.”
Download Press Release PDF
The reported profits of some of the top life insurers appear below.
- AMP – posted a 12 per cent rise in first-half underlying profit to $570 million. Reported a 33 per cent rise in statutory net profits to $507 million from $382 million in the year-earlier period. As at 20 August, 2015.
- TAL – Financial results released by TAL’s Japanese parent, Dai-ichi Life, reflect that TAL’s premium income was up 21% to $2,234.9 million and underlying profit after tax rose 12% to $146.6 million. TAL’s embedded value grew by 32% to $2,584 million over the financial year. As at 19 May, 2015.
- ClearView – Posted a 4 per cent rise in underlying profits to $20.5 million for fiscal 2015. Although it reported a 10 per cent drop in reported net profit to $12.5 million due to amortisation of intangibles and integration costs associated with financial advice group Matrix’s merger into the company. As at 26 August 2015
- ANZ – Statutory profit after tax of $3.5 billion up 3%. Cash profit of $3.7 billion up 5%. Profit before provisions (PBP) up 4%. As at 5 May 2015
“Consumers should rightfully be asking how life insurers can say they are increasing life insurance premiums because their businesses are not sustainable, when their own evidence clearly shows they continue to make substantial profits,” Mr Cain said.
If sustainability is of such serious concern to life insurers, Mr Cain argues there is much more they could be doing to maintain, or further increase, profits than increasing premiums and pushing for commissions paid to financial advisers to be slashed.
“If life insurers do have a sustainability problem, then the onus should be on them to solve that problem,” he said. “Amongst other things, they could be innovating on product design and lobbying the government to ensure that things like stamp duty are removed from life insurance to make it more affordable,” he said.
LifeInsuranceDirect.com.au has produced a paper which is below on why do your life insurance premiums keep going up?
Why do your life insurance premiums keep going up?
Despite crying poor, the last reporting season revealed that life insurers have continued to make substantial profits. So why do they keep hiking up your premiums? Here are some possible explanations.
Up go the premiums
Life insurers would have you believe they have to keep increasing premiums on the life insurance policies you already hold because they are paying more out in claims than they ever have in the past. As a result, they have put up the cost by as much as 20 per cent.
We know of one large insurer that has increased premiums on one of its products by 43%. We believe this is an attempt to force people to cancel their policy (also known as ‘anti- selection’). You see, insurers know if they put the premiums up high enough you will cancel your policy. This will leave you high and dry if you can’t get another policy because of, for example, your past medical history.
You are paying for past decisions made by insurers
Some time ago, in an attempt to win the business of superannuation funds, insurers began discounting ‘group’ policies (policies that cover members of the super funds). The premiums were very low and the policy terms, which required little or no medical assessments, were very favorable. This is what led to them paying out substantially more in claims than they did in the past. And this is one of the reasons they are now dramatically increasing premiums and downgrading terms on group policies.
However this still doesn’t seem to be enough for them as they now want to further bolster their profits by increasing premium rates on individual policies, like your’s. This is not right – they should not have offered unsustainable polices in the first place!
Poor product design
According to life insurer, TAL, 91% of current life insurance policies have ‘stepped’ premiums. This means your premium increases as you get older. It makes sense (to insurers) because the older you get, the greater the risk of dying. It makes less sense to you because the older you get the more unaffordable the premium becomes and therefore the more likely you are to stop paying and lose your life insurance cover.
We believe products designed with stepped premiums are flawed and the time for life insurers to design new products that meet the needs of 21st century consumers is long overdue. So shop around and compare life insurance policy options before taking out a policy. And when you do, seriously consider opting for level premiums as despite recent increases they remain more affordable than stepped premiums in the long term.
Most insurers default to increase your cover by CPI or five per cent (whichever is the greater) each year. More cover means more cost.
Policy fee increases
Every year insurers also put up their policy fees by CPI.
Life insurance products attract stamp duty and we believe insurers are not doing enough lobbying to government to remove stamp duty to make them more affordable.
Published: October 7, 2015