APRA, ASIC call for review of life insurance premium increases

The Australian Prudential Regulation Authority (APRA and the Australian Securities and Investments Commission (ASIC) wrote to the Australian life insurance industry following consumer complaints and insurers' reportable situations related to premium increases in retail life insurance policies.

In their letter to CEOs of life insurance companies and friendly societies (collectively named “life companies”), APRA and ASIC said they are concerned that some life companies:

• Inappropriately applied premium increases to retail life insurance policies, particularly level premium policies per the policy terms; and/or
• Have not acted per the reasonable expectations created through the relevant disclosure and marketing material.

These concerns indicate that some life companies lack effective systems, processes, and controls to ensure:

• Clear and effective disclosure;
• That all premium changes are made per the applicable documents forming the contract between the insurer and the consumer;
• That marketing materials and other documents are not misleading; and
• Continued compliance with their legal obligations, including acting efficiently, honestly, and fairly.

Expectations regarding existing policies

APRA and ASIC request life companies that write – or have written – retail life insurance policies to review:

• Previous premium increases, including legacy products, to determine whether premium increases or re-pricing decisions were applied according to applicable policy terms; and
• Previous disclosure and marketing materials to determine whether policyholders received sufficient knowledge about future premiums, including how premiums may change over the policy's life.

Expectations about the design of future product offerings

APRA and ASIC request life companies to:

• Consider the appropriateness and clarity of disclosures and marketing materials as they relate to future premium increases;
• Review existing product labels, considering the appropriateness of describing products as “level premium” if there isn't a high degree of confidence around premium stability; and
• Consider how to manage policyholders' reasonable expectations around premium increases in an ongoing manner.

“We acknowledge that ensuring the ongoing sustainability of life insurance products is a challenging issue. APRA's measures related to individual disability income insurance (IDII) have set clear expectations on the design of sustainable products, including the need to provide policyholders with reasonable premium stability,” APRA wrote in the letter.

For the year ended September 2022, APRA found that the Australian life insurance industry had an $8.3 billion revenue, a dramatic drop from $20.9 billion in the year ended September 2021. Meanwhile, the industry's net profit after tax for the year to September 2022 was $0.2 billion, another dramatic drop from the previous year ($1.4 billion).

APRA and ASIC request life companies that write – or have written – retail life insurance policies respond to ASIC by March 31, 2023, outlining:

• Premium increases that may not have been applied according to policy terms and disclosure and marketing materials that may have misled policyholders about the premiums they would have to pay;
• If any issues or concerns were identified and what steps are planned to report, rectify, and remedy these issues; and
• Their proposed actions to meet the regulators' expectations about the design of future product offerings outlined above.

APRA and ASIC expect an update by February 28, 2023, on the steps taken by life companies to complete the review and the likely timing. ASIC will arrange meetings to discuss individual responses from April to May 2023.