Alan Lakey analyses premium adjustments on CI policies in the wake of the Gender Directive
It is well known that sales of critical illness (CI) plans have been falling over the years, with the majority of insurers’ 2013 figures being lower than those from 2011 (the European Union’s Gender Directive distorted 2012’s figures).
Legal & General showed a sales increase over this period, but its figures are still lower than they were back in 2004.
One of the prime marketing techniques has been to snip away at premiums in an attempt to undercut the opposition and/or as a defensive manoeuvre to combat other insurers’ reductions.
But this has not proved successful in encouraging consumers to buy CI, as much of the new business is in the form of replacement policies.
The evidence indicates consumers do not react to premium reductions – although, conversely, advisers do.
A previous COVER survey exposed the sad reality that the majority of advisers select the cheapest plan and, invariably, those same advisers will seek to re-broker the deal when lower premiums emerge.
Regardless of whether or not this actually constitutes ‘advice’ in the truest sense of the word, the facts indicate that lower premiums only serve to cut the same-size cake into different-size portions.
The 2012 Gender Directive appeared to kill off the possibility of premium-based re-broking, but fears of premium rates soaring across the board have been misplaced.
CIExpert has been keeping tabs on premium adjustments post-directive D-day. It is immediately obvious insurers took a hard initial stance, with premiums across all age, gender and smoker status bands suffering rate increases, apart from the odd exception.
By way of example, Zurich increased rates for 40-year-old female smokers by 37.3%, with a 38% increase for equivalent non-smokers. A male non-smoker aged 40 suffered a 22% increase with Zurich but only a 1.5% increase with LV=.
Within three months rates fell across the board and, in most instances, have continued falling ever since.
The changes have not been uniform, with rates for male non-smokers aged 30 being around 4% higher than before the directive.
Females suffered broadly equivalent increases, although Aegon currently shows as 3.7% lower and Bright Grey is also fractionally lower.
Perhaps surprisingly, some rates for smokers have fallen more than for non-smokers.
The most obvious example is L&G with a 10% reduction for a 30-year-old male, while PruProtect stands out with an 11% increase. Corresponding females suffered increases across the board of typically 20%.
Male non-smokers aged 40 suffered an immediate post-directive increase ranging from 1.5% with LV= to 9.3% with PruProtect. Rates dipped shortly after to the point where, apart from L&G and Scottish Provident, they are now cheaper than in October 2012.
A similar pattern emerges with females – an initial jump has subsided and, while rates are generally around 10% higher, Aviva is only 2.8% higher.
Male smokers aged 40 can now find rates around 10% lower, although equivalent females can expect to pay between 13.9% and 25.9% more.
So, are there any messages that can be gleaned from these statistics? Advisers who continue to play the premium game will find plenty of potential among the male smokers, while those who wrote business in the immediate post-directive period will surely find cause to revisit those clients to discover whether better terms can be obtained.
Of course, canny advisers who pursue quality products rather than premium rates will find it even easier to analyse plans and offer better value as opposed to merely cheaper rates.
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