Significant premium increases in 2022
Risk (Life, Trauma, Income Protection, Total & Permanent Disability and Health Insurance premiums increased more than usual this year. Mine included!
So why did your premiums go up so much?
Inflation
Your sum insured is automatically set to increase in line with inflation so that your claim value keeps in line with the ‘value’ of money. This should in effect ensure your claim functions as it would have when you first took out cover despite inflation’s impact.
Age
There are two types of premium structure.
a) ‘Stepped premiums’ which begin cheaper but increase with age.
b) ‘Level premiums’ which begin more expensive, but don’t increase with age after 15-30 years (depending on your age and the cover in question) result in a lower cumulative premium over time.
You can view a typical example of this here. Note how the cross over point is after having the cover for 27 years? In light of this, you need to work out whether you will need to/or want to retain cover for more than 27 years. If so, Level Premiums are a better option. Get in touch if you would like to shift some of your cover to Level Premiums.
*Level premiums are not available on Health Insurance due to medical inflation.Claims stats aren't looking good (people are claiming more, especially on cancer)
The removal of cross-product subsidisation
What is cross-product subsidisation?
For more context – Partners Life, for example, stated late last year to us that they believe the FMA has become concerned about cross-product subsidisation throughout the industry. Partners Life has been analysing this for some time in light of their claims statistics over the past 10 years and agree that it's a real problem.
In layman's terms, this is a practice where a product with incredibly high claims (such as Trauma Cover on women under age 35) is being subsidised by a product with lower claims (Life/TPD/IP).
Partners Life have identified these issues and repriced products accordingly. Some have gone up, some have gone down.
In Partners Life's last renewal comm to you, they included an insert explaining the matter. Have you seen it? Here's the digital copy, there's a handy video there. (https://www.partnerslife.co.nz/news-and-views/reshape)
From an advice (and industry sustainability perspective), everything about the pricing changes make sense (though they do hurt a bit for those hit with increases, me included, I'm with Partners Life too!).
However, it's probably a helpful trigger for a review of your cover levels and how Partners Life's pricing compares to the market.
Out of any insurer Partners Life has had the most significant premium increases associated with cross product subsidisation this year. If you’re with Partners Life, it may be possible you would be able to achieve decent saving shifting you to another insurer Cigna or AIA, but I also suspect that their pricing will follow suit in 6-12 mos time. Partners Life tends to be the more agile of all the insurers, and have always been a trend-setter.
Hopefully this quick overview was helpful. If you want a deeper dive into y0ur options, or would like a comprehensive review you can book in a meeting with me here: https://calendly.com/samuel-at-reesthomasfinancial/insurance-portfolio-review-on-the-terrace-30