Premiums for retail income protection policies with insurer AIA have climbed substantially over the last two years.
One AIA Priority Protection policy sighted by Financial Standard had a 27% increase from 2018 to 2019 and then a 32% increase from 2019 to 2020.
The customer in question went from paying $4309 on a policy in 2018 to $7281 in 2020. Mercer Financial Advice advised on the policy.
Stepped premiums which increase with age was a compounding factor for this customer but AIA confirmed that "a majority" of its retail clients had a 9.8% increase on income protection policies in 2019.
"This is in line with industry average increases," a spokesperson for AIA said.
"The insurance industry has been experiencing an increase in income protection claims over the past few years. One of the ways in which we address sustainability of our products in the face of higher than expected claims costs is by increasing premiums."
The spokesperson suggested that where an individual is concerned about premium increases they should work with their insurer and financial adviser to find ways to make the policy more affordable.
A spokesperson for Mercer said whether an individual should retain cover in light of rising premiums is a matter of assessing personal circumstances.
"We strongly recommend that individuals seek advice to assess their insurance needs on a regular basis," the spokesperson said.
"While income protection can be costly for older age groups, individuals see value in the products when faced with the alternative of complete loss of income, often with a family to support and mortgage commitments to meet."
The PDS for AIA Priority Protection says it's possible to save up to 20% on premiums by "making healthy lifestyle choices" with AIA Vitality.
The PDS is 204 pages long and does not include clear outlines of the fees clients can expect to pay with age and health conditions.
AIA declined to provide further information about how much more customers have been required to pay for income protection over the last two years.
Earlier this year, MLC Life owner Nippon Life reported to the Tokyo stock exchange that deteriorating conditions in the Australian life insurance industry are to blame for challenges facing MLC. The international insurer specifically pointed to income protection products as having deteriorating profitability.
In reviewing the business plan for MLC to address these challenges, the first move Nippon Life made was to amend its income protection policies.
KPMG research from November 2019 found that profitability in life risk insurance in Australia had dropped to the extent the industry is now loss-making.
KPMG partner and head of insurance David Kells reiterated the influence of the difficult environment life insurers were operating in, and said there was "no simple solution to the very poor experience of income protection business".