Advisers fear customer backlash as premiums soar

With AIA, UniMed, Southern Cross and Partners Life all hiking health insurance premiums by double digits, there is increasing concern that the scale of increases will drive customers away from cover.

Advisers are worried about customer backlash and policy lapses as health insurance premiums surge by up to 21% across all major insurers.

The concerns follow Partners Life's announcement of a 20% annual increase for existing customers, matching similar steep rises from competitors. AIA hiked premiums by 17%, UniMed by 16%, and Southern Cross by 21%. Russell Hutchinson, director at Chatswood Consulting, says the scale of the increases has risen significantly this year.

"It is really difficult. If you've got a rate for age increase and add in the base rate change, then you have some really substantial increases," Hutchinson says. "We normally get increases of around 8% a year, and coming out of a period where we've had quite high inflation, there's pressure on customers' wallets."

Partners Life says rising medical costs are forcing insurers to review premiums more frequently. The company's last increase was in April, but it's now implementing another rise from July 22, with plans to review prices regularly throughout the year rather than waiting for annual reviews.

Advisers worried about customer reaction

Insurance advisers are concerned about the impact of such steep increases on customer attitudes and retention rates.

"The kinds of conversations we've had with advisers - they're not happy about it, and they're worried about the impact on overall attitude to insurance and costs," Hutchinson says. "I definitely don't blame them for feeling that way!"

The scale of increases is creating real problems for customers already struggling with household budgets. "If you're putting a premium up by 20%, you're definitely going to strike some pushback from some customers," Hutchinson says. "We know there are customers out there who have been struggling with household budgets over the last year, and it would be hard to imagine that there's going to be no impact on lapses."

Advisers also report seeing more policy lapses across both life and health insurance as customers feel the pinch.To manage costs, customers are also accepting much higher policy excesses than in the past. Where insurance was once typically sold with no excess or $250, the most popular excess on quotation platform QuoteMonster is now $500, with $1000 the second most common.

"We are seeing significant numbers of quotes for a $10,000 excess as a way to manage cost," Hutchinson says.

"In the event of a catastrophic requirement, could the customer lay their hands on $10,000? Maybe. But if a round of non-PHARMAC coverage will be $80,000, then they'll at least get that $70,000 paid. These are the kinds of conversations being had.”

What advisers are prioritising

Despite the cost pressures, Hutchinson says advisers are focusing on retaining coverage for critical areas. They're talking about the value of keeping specialist tests and diagnostic coverage, because it is felt that the public system can be slow to spend around diagnostics, particularly where there are limited symptoms.

Others emphasise the importance of retaining cover for major health events, particularly access to non-PHARMAC medicines for conditions like cancer.

Partners Life says the premium increases help ensure it can continue offering market-leading benefits including non-PHARMAC cover and guaranteed upgrades, describing the current environment as "challenging times for our industry."