Regulators note advances in life insurers' practices

ASIC and APRA commenced a joint review in 2022 over concerns that life insurance premium increases might not have aligned with policy terms or met policyholder expectations set by disclosure and marketing materials, though has since noted progress.

The regulators said life companies need to strengthen their risk management and compliance assurance around re-rating practices, which it noted led them to revisiting past premium increases, and where premiums were increased without a clear right to do so, returned overpaid premiums to consumers and fixed the relevant systems and processes.

The regulators also noted that life companies reviewed their risk governance practices, leading to "some improvements to better deal with the risks identified in the review.

Regarding marketing and disclosures, the regulators said life companies should be better at explaining how premiums are calculated and how they may change over the life of a policy.

"ASIC observed that consumers who complained about increased premiums - particularly consumers on 'level premiums' - were generally under the mistaken impression that their premiums would not change. Life companies' selling practices contributed to creating this impression," the regulators said.

"The old premium labels (i.e. 'stepped' and 'level' premiums) failed to clearly communicate that premiums could change. The word 'level' - often combined with a written or visual explanation - created a false perception of premium stability."

However, all life companies have now adopted the new premium labels developed by the Council of Australian Life Insurers - 'variable premium' replaces 'level premium' and 'variable age-stepped premium' replaces 'stepped premium'.

"These new labels illustrate a difference between the two options, but also highlight that either type of premium may change," the regulators said.

The regulators noted that life companies are also trialing new ways to communicate premium increases to affected customers including creating and consumer-test annual renewal letters and significant event notices.

Meanwhile, the regulators previously said that life companies should improve their product governance, starting by considering consumer needs, including premium stability.

"Our work has seen life companies reflect on whether this pricing model, and the resulting steeper premium curve, is suitable for all consumers," the regulators said.

"Some life companies are exploring solutions to balance price competitiveness and premium stability by introducing customisable options, such as a fixed premium period or a flatter pricing option, to ensure different needs can be met."