What are the arguments both for and against guaranteed and reviewable income protection (IP) rates?
Guaranteed rates provide your clients with the peace of mind that the rates used to calculate their premium will not be changed throughout the term of the policy.
However, this security usually comes at a cost, because the insurer must price the product assuming that the future experience is going to be worse than predicted, to allow some prudence should their assumptions prove incorrect.
Reviewable rates provide the insurer with the ability to review its rates at some point in the future if its actual experience differs significantly from that expected. The intention is that the premium rates will remain unchanged, but potentially they could be increased or reduced. Because the insurer has the ability to review the rates they do not need to include any prudence in the premium calculation, hence the premium will usually be cheaper. The introduction of reviewable rates was an acknowledgement of the fact that it is impossible to accurately predict long-term morbidity trends.
There is naturally still some hesitancy towards reviewable rates because a full historical record of the action taken at reviews has not yet been established, as they are a fairly new concept in the IP market.
However, you and your clients can take some comfort in the fact that a wise insurer would not increase rates beyond its current new business rates.
Insurers know that if they were to increase rates to an unacceptable level they would risk losing all their healthy policyholders because they could obtain cover elsewhere, leaving them only with those likely to claim.
