Insurance prices are increasing and everyone is feeling the pain of this. As an adviser, it can be overwhelming to see the volume of requests from people like you frustrated with these pricing changes and demanding they be changed.

Having recently substantially increased the number of people I look after with my merger into Via, the dynamic has shifted from only hearing from people that I had built relationships with over many years to having more people that I am interacting with for the first time as these pricing increases have hit.

This creates a pretty average dynamic from which to start a conversation.

In the interest of sharing what it is like from the other side, I wanted to share a few ways in which this can be handled in a productive way that will see a better relationship formed.

Why are prices changing at the moment?

There are 4 major factors that are affecting price:

Insurance companies are running at a loss

  • I’ve written about this at length before so I won't bore you with this all over again. Collectively, the insurance companies have lost over $3B in the last 5 years.
  • Whilst this may not seem relevant to you, the reason this is important is that traditionally, the only mechanism the insurance companies have to adjust profitability is price.
  • Insurance is a pooled product meaning those of us with insurance policies pay premiums to fund those of us that need to claim
  • The pool needs to be maintained so that the promise of claims can be delivered
Not enough money in the pool = no claims

Interest rates (were) at an all-time low

  • this has been great for those of us with loans however, as I am sure you have seen with earning rates on any cash you have, returns on cash are almost non-existent
  • The insurance companies take the pool of insurance premiums and seek to invest these funds
  • There are mandated reserves of cash required of these insurance companies that are readily available to pay claims
  • If the earnings rates on these cash reserves are lower, there is less in the pool.
Less money in the pool = increase in premiums

Increased claims during COVID

  • as with other major events, there is an increase in certain types of claims during COVID
  • It may not be what you think with COVID-specific claims leading to very few claims
  • The increase in claims from our experience (and the broader market) have come with the flow-on effects of an extended period of unusual life
  • Mental Health related claims have been higher than normal
More claims = less money in the pool = higher premiums

Introduction of the Protect Your Super legislation

  • this was a government initiative whereby default insurances for those with less than $6,000 in super or inactive super funds were automatically cancelled
  • The idea of this was to protect the balances of these funds to limit the erosion of these balances by fees and premiums
  • An unintended consequence of this meant that the premiums paid from these insurances were removed from the insurance pool
Less money in the pool = higher premiums for those of us left in the pool

As you can see these 4 factors all lead to one thing with only one course of action for the insurance companies which has been to lift prices.

In addition to this, new business figures from across the industry following the Royal Commission and the LIF changes have again led to less money in the pool. Let’s say it again, less money in the pool = higher premiums.

This is the perfect storm.

What does the future look like (in my opinion)?

Loss-making in the insurance space - we have seen a few major changes in the past few years in the insurance space:

  • Consolidation of the market - insurance providers selling/merging businesses
  • Technology investment - insurance companies (to varying degrees of success) are trying to improve efficiencies and reduce costs with technology
  • Flexible working environments - ever been to a capital city and looked at the buildings? Having a hybrid workforce has allowed the insurance companies to reduce overheads
  • Product changes - the biggest change we have seen here is with Income Protection (check out this article for detailed info on this). This may seem like a watering down of existing policies but in reality, is a required move in most cases to get back to what the intention of these policies are designed to do.

Interest rates - You would have to be living under a rock to have missed the news about where interest rates are heading

  • Interest rates are and will continue to increase to more normal conditions
  • Higher interest rates = better returns on the pooled insurance premiums

COVID claims - hard to make a call on the long-term impact of this one however I think we can agree that this was a unique situation

  • For most of us, this event will be something like we have never seen before
  • Again, for most of us, the impact of COVID on the world is likely to be something we will never see again
  • If this were something on a graph, this would be an outlier in normal life the type of thing we will not see again

Insurance for small balances - this pain will not be recovered but is not an event that will be felt again

  • Just because you have a small balance in super doesn’t mean you need insurance nor does it mean that you don’t
  • Insurance should be a choice, an informed decision

In all of the above, barring the PYS legislation, I believe we are heading back in a more positive direction for the balance sheets of the insurance companies and therefore the sustainability of your insurances.

What is my role as an adviser?

To make it perfectly clear, we are middlemen between you as the customer and the insurance company. This leaves us in a situation where we have very little control over what the insurance companies do, nor can we predict what the insurance companies will do in the future. In saying this, I feel my job is as follows:

  • Make sure you have the right amount of insurance - If we focus on the need for insurance and have a framework for adjusting this cover as your need changes, you will know why you have the cover you do and the trigger points which would lead to a change in cover levels. This is a cooperative task that you need to take some responsibility for as well.
  • Share knowledge and experience - I believe there has never been a more important time for people to specialise in what they are doing. Like anything the more you do of the same thing, the better you get at it (assuming you do this with consideration)
  • Provide options - with understanding and trust comes better outcomes. It is very easy to get frustrated with rising prices and cancel your cover altogether which is completely your choice. I am going to assume that there was a reason for you taking out these policies in the first place and if we remove the initial emotion and look for rational solutions, you can remove the risk of later regretting any hasty decisions.

You may think that all I want to do is have you keep your policies in place because we continue to get paid. That is one way to look at this but you would be wrong. I would be more worried about the people who are quiet at this time not proactively contacting you to revisit the needs for these covers and coming to you with rational ways to address these rising prices.

I can tell you about the legal obligations we have to put your best interest first but that is not why I do what I do.

I am a person who cares about their job, I am a person who cares about my role in this with you and I am a person who is willing to work through this rationally with you at any time. I am a person that cares about you.

I am not a massive call centre hiding behind layers of options with crazy wait times, I am not a person who will ever stop you from doing something that makes sense and I am not a person who is un-sympathetic to the way these insurance companies have been increasing their prices.

Words are great but action is where trust is built so let me prove to you that I am a man worthy of these words.

If you wanted to chat, here is a link to my calendar.