A “loyalty tax” appears to be alive and well in Australia’s life insurance industry, with those who stay loyal to their insurer likely to be paying higher premiums than new customers, according to new analysis.
Life insurance comparison website, Insurance Watch, says based on its observations of life policies more than five years old “…there could be a substantial saving moving to a new policy.”
The firm explains its analysis found that price is the top concern of life insurance policyholders, with feedback on premiums featuring in more than 35% of customer reviews on its website during the year to June 30, 2024.
Insurance Watch Managing Director, Wally Ripper says the focus on price is probably not surprising given the cost-of-living pressures most consumers are currently facing.
“However, our research also revealed that long term customers were more likely to be dissatisfied with their premiums than newer customers.”
Consumers giving positive feedback on the pricing of their policy had held their policies for an average of only 2.7 years. In contrast, those expressing dissatisfaction with their premiums had held their policies much longer, for more than 8.1 years on average.
Ripper says there are a number of reasons why this might be the case, including stepped premiums, which increase with age, and recent premium increases for some trauma, TPD and IP policies.
…these results …suggest that a loyalty tax exists…
“However, these results also suggest that a loyalty tax exists.”
He says this is particularly the case for life insurance policies, where competitive pressures over the last five years have generally pushed retail premiums lower.
A comparison of average premiums over this period indicates there have been large falls in the premiums available to new customers for those aged 45 and over, the firm says.
But, there are a number of reasons why loyal policyholders may not have received the benefit of these lower life insurance premiums:
- Duration-based pricing: According to ASIC, most life insurers have adopted this method of pricing, which assumes that a claim is more likely the longer a policy is in place. As a result, discounts are provided in the early years of a policy and then progressively removed over time. Under this pricing structure a long-term customer can end up paying more than a new customer of the same age.
- First year discounts: Some insurers include upfront discounts in their premiums which are only available to new customers. These discounts generally only apply in the first few years of the policy. When they drop out, premiums revert to the higher “standard” rate.
- Legacy insurance brands: Older brands which are closed to new business, such as CommInsure, BT, Asteron, Resolution Life (formerly AMP) and Integrity, may have higher premiums because they are no longer subject to competitive forces.
The company says existing policyholders may find the only way they can access lower rates is to take out a new policy. However, for those with health issues, switching policies may be difficult, as new applications require health assessments.
Ripper says that based on Insurance Watch’s observations “…if a life insurance policy is more than five years old, there could be a substantial saving moving to a new policy.”
He adds that the best way to identify the size of this saving is to use a comparison website like Insurance Watch, which compares prices from top life insurance providers.
*Average premiums were calculated for insurers available on the Insurance Watch website on both 22nd August 2019 and 22nd August 2024 – AIA, ClearView, MLC, NEOS, OnePath, TAL and Zurich. Premiums for new policies were compared at five year age intervals between the ages of 15 and 70 for $500,000 life insurance cover for male and female non-smokers with an office-based occupation living in Victoria. Health discounts … were not included.