Twelve months since the launch of COVER's premium tracker, Angela Faherty takes a look at the rate changes in the protection market over the last year
Over the last 12 months, COVER has been working with The Exchange to provide readers with a monthly premium tracker illustrating rate changes in the protection market. The tracker provides rate differentials over a monthly basis for individual standalone critical illness (CI), income protection (IP) and term assurance cover.
Broader range
In order to calculate premiums, the same case study is entered into The Exchange's Exweb portal each month. The criteria used is that of a 25-year-old male office clerk, who is a non-smoker. Once the criteria has been entered into the system, Exweb searches the whole of the protection market to find the cheapest, average and most expensive premiums for each of these protection products.
Due to the large number of solutions on the market, and the price differentials between the wide array of products available, it is important to understand how the Exchange calculates the premium tracker rates.
"Over the last 12 months, some providers have withdrawn from offering guaranteed critical illness rates for example, and because these solutions have been removed from product circulation, they have also been withdrawn from our system," says Charlie Musson, PR manager at The Exchange.
Musson adds that because the premium tracker outcome is based on the criteria and not filtered down beyond these details, it helps to provide a broader range of possible solutions as the entire market options are assessed. However, he adds, that in some cases, it may look like the rate changes are more or less than providers and advisers have experienced.
As expected, it is CI that has dominated the market over the last 12 months. There have been huge fluctuations in premiums, particularly in the guaranteed rates sector, where rates have rocketed and plummeted on a monthly basis. Add to this the fact that reinsurance capacity is fairly limited and it is obvious why it is CI that has changed so dramatically over the last year.
Erratic market
The premium tracker shows that for the entire market, the lowest monthly premium fell by 21% between April 2003 and 2004, while the highest rose by 19.4% over the same time frame. While the average premium only rose by 3.8%, it is clear when comparing the three sectors, that the CI market has experienced the greatest turmoil over the last 12 months.
Kevin Carr, technical manager at LifeSearch, says there are a number of reasons driving the somewhat erratic CI market. "Changes in the critical illness market have essentially been driven by reinsurers," he says.
"There is no longer the support or capacity for guaranteed rates there once was and obviously, this will have an impact on price. Similarly, medical developments have changed the face of the market, as we know it. Things that were once considered critical such as angioplasty can now be performed as day surgery, so it is difficult to price the risk."
Ron Wheatcroft, technical manager at Swiss Re Life & Health agrees, adding the turmoil in the sector means it is hard to get an exact figure for the last 12 months.
"There has been so much fluctuation in the market that it is almost dangerous to have an average increase between poles this wide. So much has been going on in this sector in terms of reduced access to reinsurer terms, product changes and definition withdrawals, pinpointing an average can be difficult," he says.
Wave of activity
While there has been a wave of activity in the CI market, the IP sector has remained fairly innocuous. There have been minimal changes in terms of price fluctuation, with the lowest monthly premium falling by 8.5% and the average increasing by 6.2%.
"The figures do not surprise me," says Wheatcroft. "Not a lot is happening in this sector and there doesn't seem to be any demand for the product, and I cannot see this changing for the foreseeable future."
One of the changes that has been predicted for the IP market is alterations to the classification for different occupations. "Occupation classes on income protection have changed and are likely to continue to alter over time. Teachers were previously considered class one and a low risk, but with rising stress levels they are now in the next band. I think the IT industry is likely to follow too, particularly with the increasing number of claims for repetitive strain injury, and this can certainly double premiums. "
Like the IP market, the term assurance market hasn't experienced a great deal of change over the last 12 months, with premiums rising by an average of 6.9%. Interestingly however, there has been a phenomenal 65.9% increase in the highest premium since last April. While this figure may seem shocking, there are a number of reasons for the rise.
"While the rates for people under 40 have dropped because of the buoyant mortgage market, for smokers and those over 45, premiums can increase by at least 10% and this difference is reflected clearly between the two poles," says Carr.
Buoyant market
Add to this other factors including the continued fall in term assurance rates over the last few years, it would seem that falling premiums have reached a plateau, therefore, it is inevitable that premiums will rise over the next few years.
Looking ahead, industry commentators do not expect any significant shift in the market. Just like the last 12 months, it is expected that CI will continue to see a great deal of fluctuations in price and this is likely to continue until the market starts to settle down. Aside from changes to occupation classes, the stagnant nature of the IP market is expected to continue, with both sales and premiums staying fairly steady. Similarly, while sales of term assurance are likely to continue to rise, predictions show that premiums are unlikely to fall any further.
