Life Insurance 'Model' Implosion

I’m finding the Life Insurance Industry response to ‘business retention (profitability)’ a little bit bizarre; to say the least.

You see, there’s a problem with the length of time that Term Life Insurance business is staying on the books because the product is being re-written every two or three years.

In the majority of situations the policy is moved to a different insurer by an intermediary and justified on the basis that the ‘new’ insurer is cheaper ; fair enough. As Insurers keep tweaking/reducing their Term Insurance rates, it is probably no harm for the consumer to benefit from the reductions, so long as the terms and conditions of the policy are identical.

Those consumers that avail of the commission rebates on first years premiums via discounted life insurance websites can save money by moving around this market on a regular basis also, provided they are in good health.

So, who’s ‘benefiting’ from the current model? The Consumer - because they are getting a cheaper premium. The Intermediary - because the commission structure is such that it is lucrative to re-write the policy every few years.

If the break-even for an Insurer is 7 years on a Term Insurance Policy, how are they ever going to make it profitable for themselves; and when will the current model implode?

To acquire this type of business, Insurers have resorted to i) Price matching i.e. our ‘real’ premium is €100pm but if another insurer is quoting cheaper, we’ll match it ii) Increase initial commission and override to Intermediaries & iii) Spreading higher commission out over longer periods of time.

God forbid that the Insurers ‘offend’ the Intermediary market by putting the Consumer at the top of the priority list but, in my humble opinion, these actions are not going to solve the problem.

Insurers (and Re-Insurers) need to get their act together and come up with a different business model for these products.

I’m sure that they are worried about the extent of how much re-writing will take place when the latest European Court of Justice ruling on gender equality on insurance premiums. Good for some consumers, an income bonanza for intermediaries and another nail in the coffin for Insurers.