Protection Premiums Set to Rise

TMP have recently been working with The Alexander Associates Group who specialise in wealth management and corporate services. They have bought this to our attention and would like to share this major change with you and your clients.

PROTECTION PREMIUMS SET TO RISE

The implementation of Gender Neutral Pricing along with a change in tax rules on Life Companies, known as I minus E, will result in increases to protection premiums. Both come into force in the next few months and each factor is outlined below:

GENDER NEUTRAL LIFE ASSURANCE PRICING

Last year, the European Court of Justice banned the use of gender when determining new insurance premiums. This will result in millions of individuals paying considerably more for new insurance plans. Any new plan must be in force, not in application, by the 21st December this year to avoid the impact of this change in legislation.

WHICH PLANS COULD BE AFFECTED?

Although general insurance, such as car and home cover, could be affected, gender will primarily influence the prices paid under the following types of insurance:

• Life Assurance/Critical Illness

Men currently tend to pay more than women as, on average, women live longer. The ruling will lead to higher premiums on new plans, whilst the biggest increases will affect women.

• Health Insurance – Income Protection

Women already tend to pay more than men because they are more likely to visit their doctor when feeling ill, increasing the chances of a claim. They are also more likely to suffer from certain chronic diseases. The biggest price increases in the cost of new plans will, therefore, be seen by men; indeed some women may see a fall in the cost of cover.

• Annuities (fixed income for life)

Men currently tend to receive higher levels of income because on average they live for a shorter time, so insurers won’t have to pay out for as long. Annuity rates on new plans, and hence income levels, are likely to fall for men.

The simple fact is that insurance pricing is about risk; a number of factors are taken into account and these factors are different for men and women. The inability to allow for gender will not necessarily make pricing fairer but, when the ban comes into effect at the end of 2012, it is likely to increase prices for new life cover, critical illness and income protection plans, as well as reduce income from new annuities.

I MINUS E

What is the I-E tax regime?
‘I-E’ is short for Investment Income and chargeable gains minus Expenses. It is a tax system that allows protection providers to offset some of their tax liability on trading profits made from their investment business against their protection business.

From 1st January 2013, protection business in the UK is being removed from the I-E tax regime and this will no longer be allowed. Experts are predicting an increase in protection premiums for the majority of new protection customers buying Term Life insurance and Accelerated Critical Illness plans in 2013.

This is in addition to Gender Neutral Assurance Pricing discussed above.

How big is the potential premium increase for life and critical illness cover?
The Actuarial Profession stated in March 2012 that removal of life and critical illness cover from the I-E tax regime “is expected to increase the price for Term Life Insurance and Accelerated Critical Illness plans by around 10%”.

Summary

What is accepted is that protection premiums today are as low as they will get, therefore now is the time to review your existing protection arrangements to ensure they are adequate moving forward, and allowing any new application enough time to be underwritten before the impending changes.

This article has been replicated with the kind permission of Alexander Associates who can be contacted via Steven Bevan on Steven.bevan@aag.co.uk, Telephone: 020 7166745 quote TMP, www.sjp.co.uk/products

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