Price Matching - Consumer Obfuscation

You know when you ring your car/house insurance company and tell them that you have secured a cheaper quote, than their renewal, and they tell you that they will match the cheaper quote if you stay with them? Well, that's price matching and consumers are complicit in its growth as a way for insurers to gain and retain business.

It has slowly, but surely, made it way into the Life & Pension sector over the last number of years but regulators, consumer interest groups and advertising standards have ignored it. It's mainly in the term assurance market but is now standard practice, on annuities, for the largest insurer in the Country.

I have maintained that this practice inhibits competition and stifles innovation. It's the lazy mans way of pricing your product and not giving a toss about competing for business on product features.

If you're accepting business at a price lower than your book rate then you're effectively 'buying business'. I mean, why have 'rates' at all if you're just going to do it for the same price as your cheapest competitor?

Recently, Friends First held their hand up and admitted the following:

"We aim to do all we can to meet customers’ needs through offering high quality products at affordable premiums, ensuring transparent communication of charges and fees and providing unambiguous marketing literature. As a consequence, we have removed ‘price matching’ from our protection policies to improve customer transparency while improving the cost of our premiums at the same time.  You will now notice price cuts are across level and decreasing term products."


They've caught the bull by the horns and effectively blown the 'competition' out of the water by "doing all [they] can to meet customers’ needs through offering high quality products at affordable premiums, ensuring transparent communication of charges and fees, providing unambiguous marketing literature and rewarding them for long-term loyalty."


Answer that Caledonian Life, Aviva Life & Pension, Irish Life and New Ireland Assurance. NB : Zurich Life don't 'price pledge' and well done to them for not sinking that low.

Conversion Option & Smoking

In a previous post I reported that : With  Aviva/Hibernian Life - If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term. 

I am currently dealing with a case where the person converting is now a non-smoker, for a good number of years, and wants to 'covert' the policy with Aviva.

I've questioned the logic of charging a non-smoker smoker-rates on conversion as it just doesn't make sense, to me, that a healthier person should be penalised i.e. Complete a full new proposal to avail of non-smoker rates or pay the rates of a smoker.

So, I asked for the original policy terms and conditions to establish that it was clear from outset.

This is the relevant page: (click to enlarge)

Frankly, I just don't see how they can make this interpretation. Is it one for the Ombudsman to adjudicate on? 

Curiously, Aviva's current policy conditions state:

The new policy conditions will be issued in accordance with Aviva standard premium rates and policy conditions applicable at the time and the premium will reflect the smoking habits of the Life or Lives Insured advised by the application for the new policy

Rationalisation in the Life & Pensions Industry in Ireland

Last week Zurich Life announced (quietly) that it plans to close the Cork and Galway branches and is looking for about 70 voluntary redundancies. The company cites the continuous decline in the health of the Life & Pensions industry, since it peaked in 2007.

What’s surprising, is that it has taken 5 years to come to this conclusion and that there have not been similar occurrences with some of the other players in the market.

You see, I’d consider Zurich Life to be one of the better players in terms i) the product range they have to offer to the end consumer ii) their service and iii) a unique ability to listen to what type of product I want and try to deliver it.

There are two existing players that have basically single (okay) product offerings and I don’t know if their parents are going to plough money into the small Irish market at this time. Why would they? It’s a mess.

There are two others that I would find it very difficult to place business with based on past experience with service and crappy products. Standard Life wouldn’t be one of these.

The biggest operator is owned by the State and has just swallowed up Quinn Life. There’s a few boutique players flogging deposit based tracker bonds to death. Bank Of Ireland are ‘trying’ to sell New Ireland.

The only speculative conclusion that I can come to is that: now that Zurich Life have made a move some of the others will follow by letting folk go to reduce costs in an attempt to enhance profitability. Life & Pension companies in Ireland don’t like to be ‘first’ with crappy news so I’d expect a few of the others to come forward any day now and tell us how terrible things actually are in the industry.

Danica Life (Ireland) - What to do?

Danica Life are exiting the Irish market. It will cease trading as a life insurance company here on 31st December 2012.

The current book of business will be transferred on 31st October to the parent company in Denmark. The exception to this is their PRSA business which will have to be transferred to another PRSA provider here in Ireland.

It appears that online access to policyholders accounts, who stay with Danica, will not be available after the transfer to Denmark.

The original service Danica offered was on an ‘execution only’ basis but it is now recommending that policyholders seek financial advice before they make any decision on surrendering or transferring to another company before the transfer date.

If policyholders have to get financial advice they will have to pay for this either by fees or by entry/exit charges on the ‘new’ products that they will be investing in.

If policyholders were able to navigate the Danica products on an ‘execution only’ basis ( ie no advice) originally, then I don’t see why they can’t do so again if they are transferring to other products here. If policyholders are in the market for this type of service then they might consider the following.

The Personal Pensions, Executive Pensions, Pension Retirement Bond and PRSAs can be purchased on a ‘no advice’ basis via www.prsa.ie . There are no entry/exit charges, no policy fees and there is a single annual management charge of 1%pa.

As for the Investment Bond, well that’s a bit more tricky because of the tax implications of surrendering the Danica plan as you can’t offset the loss on a Danica fund against another fund. However, if the gain/loss is only marginal and the policyholder is adamant about surrendering the Danica fund then they might look at what’s available via www.InvestAndSave.ie or www.Bond.ie . Both of these sites offer low-cost execution only products.

The Danica Life exit announcement also refers to Mortgage Protection and Term Insurance products that they may have sold. Again, the policyholder can change provider if they wish and I’d be surprised if they couldn’t get a cheaper policy in the Irish market. Caveat : if policyholders are switching providers, make sure that you have the new policy in place (on cover) before cancelling the old one.


Declaration of Interest : The above execution only sites are operated by the author.

Specified Illness Cover - Financial Tip

As most of you will know, Specified (Serious) Illness cover pays out a lump sum if you are diagnosed as suffering from one of a number of specified serious illnesses (ie Cancer, Stroke, Heart Attack etc.), as defined in the product providers policy document.

If a ‘Critical Event’ happens (eg diagnosis of specified illness), then the insured must survive 14 days so that they are eligible to claim under the policy.

If you are in the market to buy this product, for a fixed level term, I would recommend that you buy the cover on a 100% ‘Accelerated’ basis.

This means that you insure yourself for Life Cover & Specified Illness Cover under the one policy, where the full sum insured is paid out in the event of your death or on a ‘critical event’.

The difference in premium between the ‘Accelerated’ & the Specified Illness policy only is very small and in some cases can work out cheaper. You also eliminate the 14 day survival period issue.

Life Insurance Managers should 'put a sock in it' about retention & profitability.

Those that are in the space of product providers of Life Insurance are a funny old bunch.

Life Insurance Companies are moaning about how difficult it is to retain business, as clients cancel policies and advisors re-write policies every few years. This means that life offices are not making money on these products.

I have approached a number of them over the last 12 months with a view to altering the structure of the products so that the client gets a better deal and the policies stay with the Life Insurance Companies for longer periods, thus making them more profitable.

Result : The only appetite providers have is to increase commission payments to intermediaries and not to change the product structures. The consumer is forgotten again.

Prediction : When the shareholders start copping on as to what is happening, they will change the structures but it may take a few more years.

In the meantime, I’d appreciate it if the Life Insurance Managers would 'put a sock in it' about retention & profitability.

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.

'Cheapest' Life Insurance

In the business section of the Sunday Independent there is a regular feature which analyses various financial products. It then offers a 'Best' and 'Avoid' recommendation. Yesterdays paper included the following :

Life cover

Increasing cover of €800,000 over 35 years for a 30-year-old non-smoking chap.

Best: Irish Life €77.13 per month

Avoid: Caledonian €103.89

Saving: €321.12 per year

Contact irishlife.ie or local branch

This recommendation is way off the mark for two reasons :

1. The correct initial premium for Irish Life is €93.17 per month. The premium quoted above is for AVIVA.

2. The €77.13 is increased by 8% per annum. The €103.89 is increased by 5% per annum. If you elected for the cheaper initial premium, you would end up paying around €48,000 more over the term, than if you had chosen to pay the higher initial premium.

So, what appears as a 'Saving' initially will actually cost you dearly in the long run. Someone has not compared these products on a like-for-like basis and the outcome is a misleading recommendation.

Some Things Just Don't Add Up

Let's say you are a 44 year old male and a non-smoker. You want to buy €100,000 worth of life cover and you are unsure as to whether you should but a Term Insurance or Guaranteed Whole of Life product.

The current cost of a Term Insurance policy to age 89 with Aviva Life and Pensions is €61.31 per month.

The current cost of a Guaranteed Whole of Life policy with Aviva Life and Pensions is €142.01 per month.

If you bought the Term Insurance and had the discipline to save the difference in premium of €80.70 per month over the 45 years,you would end up with a fund of over €160,000 (assumes growth rate of 5%pa net).

So why would you buy the Guaranteed Whole of Life product from Aviva?

Answer : You wouldn't.

Convertible Term Insurance

One would be forgiven for thinking that a product like Term Insurance should be pretty easy to understand. Normally, you pay a fixed premium for a fixed sum insured for a fixed term, end of story.

However, throw the word 'Convertible' in front of Term Insurance and a myriad of terms and conditions appear that are not standard throughout the Life Insurance Industry. 'Convertible' refers to the option of converting the existing policy to another type of policy, at some date in the future, without medical evidence.

The notion that price is the only deciding factor for a Convertible Term Insurance policy is a nonsense. Flexibility of the conversion option, in my opinion, carries much more weight.

In a recent e-mail survey of the Life offices offering Convertible Term policies in Ireland I asked a number of questions regarding the flexibility of the policy and what, exactly, were the policyholders options on the 'conversion' date.


Aviva/Hibernian Life - You cannot convert to a Pension Term Insurance. If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term.

Caledonian Life - You can convert to a Pension Term Insurance. Client would get non-smoker rates at date of conversion and existing policy can be altered (premium reduction) to take into account non-smoker status after qualifying period.

Canada Life - If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term. You cannot convert to a Pension Term Insurance.

Eagle Star/Zurich Life - You can only convert the policy at the end of the original term (not during). If you were a smoker when you took the policy out but qualify as a non-smoker now, full underwriting is required to change the policy. You cannot convert to a Pension Term Insurance.

Friends First - Non-smoker rates can be availed of at the end of the policy term if you are converting to a new policy, without full underwriting. Smoking status cannot be altered during the original term of the policy.

Irish Life - Converting to Pension Term Insurance is not an option. If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term.

New Ireland - No Response (yet!).


It is likely that the majority of the above companies will have to review their product offerings. The profitability of this type of product is dependent on the term that it stays in force. It makes no sense whatsoever to 'force' the policyholder to jump through hoops (ie. new application with full underwriting) if they need to make an alteration to an existing policy. It is hard to reconcile how a product provider can make money on these products when an alteration will, more than likely, drive their client to another product provider.

At the moment, the Caledonian Life policy offers the greatest flexibility, at a competitive price; but this is based on current underwriting practice.

An Insurance Product of Last Resort

Every now and again an insurance product is introduced to the market that causes me to scratch my head and ask, "Why bother?". One such product is the new '50+ Easy Life Cover' from Irish Life.

This product is aimed at the age 50+ market and is designed to provide a limited amount of 'Life Insurance' for a fixed regular premium. There are no medical questions so you are guaranteed to be issued with a policy irrespective of your state of health. The premium is payable until a claim arises or age 90, whichever is the earliest. Smokers and Non-Smokers are charged the same premium.

Sounds great, as long as the premiums charged offer good value for money. Right?

If you die in the first two years of the policy, the sum insured would not be paid out unless it's as the result of an 'accidental' death. If you die from anything other than an accident in the first two years, your estate would receive a refund of the premiums paid.

A typical example of the cost of this product would be as follows. A Female aged 60 would pay €30 per month for a Sum Insured of €7,343. At first glance that looks okay, but when you consider that the average life expectancy of an Irish Female is 81.6 years, I'm not sure where the value lies ie. €30 X 12 X 21.6 = €7,776

In my opinion it would be more prudent to apply for a 'Guaranteed Whole-Of Life Insurance' policy by completing a full proposal form. If further medical evidence is required by the insurer it is not going to cost you anything for a Medical Attendants Report or Full Medical Report. The insurance company pay for these.

A relatively healthy, non-smoking female aged 60 would expect to pay a premium of about €18 per month for a sum insured of €7,343 with this alternative type of policy. The cover would apply from the date the policy is issued.

In summary, if you have to buy the '50+ Easy Life Cover', buy it as a last resort and pay particular attention to the exclusions that go with it.

Partnership Insurance

The sudden death/incapacity of a partner in a business can be a traumatic time for all concerned. Notwithstanding the emotional damage that will be caused to the family and work colleagues, it can also have very serious consequences for the future of the business.

The financial burden of dealing with such an event will fall mainly on the remaining partner/s to resolve, so it may be prudent to agree on a compensation package, to limit the potential damage to the business, prior to an untimely event, such as the death or incapacity of a partner.

It is possible for business partners to put a monetary agreement in place, whereby the value of each partners share in the business can be 'insured'. This has the effect of protecting the family of the deceased/incapacitated partner, by having funds available to the business. These funds will be used to buy the deceased/incapacitated partner's share of the business, so that the existing partnership will not have to be dissolved; and ensures that the remaining partner/s retain control of the firm.

There are a number of different ways in which a 'Partnership Insurance' can be structured and it is important to discuss these, along with agreed valuations of the business, with your financial advisor and legal representative before the 'compensation agreement' is set up. There are also strict Revenue and Tax Guidelines that must be adhered to, so it is equally important that these are given due consideration.

This type of insurance is worth exploring if you are in business with someone else. The consequences of not having it can jeopardise the future of a thriving business or lead to financial hardship for a partner's family.

Life Insurance Underwriting

The first step in applying for a life insurance policy is when you complete a proposal form. When this proposal form is received by the Insurance Company it is then 'Underwritten'.

The insurance company need to establish if you can be accepted at normal rates, based on the answers given to all the medical questions on the proposal form. It is very important that you answer these questions truthfully as the company can refuse to pay out on a claim if it transpires that the client did not tell them about a pre-existing medical condition.

If a client suffers from something like Asthma, it will be necessary to complete an additional Questionnaire specifically on this ailment. This reduces the possibility of the insurance company requesting the information from your GP; and cuts down on time and the costs for the insurer.

Where further medical evidence is required, the insurance company may request a Private Medical Attendants Report (PMAR) from your own GP and may also request a Medical Examination (ME). The latter can be done with your own GP or with a GP appointed by the insurer, it depends on the company. Both of these reports, if required, are paid for by the insurance company.

All insurance companies have 'Underwriting Limits' up to which no/limited medical evidence is required. These are based on the age of the client and the level of cover that they a looking for. For example, a person under 35 years of age can propose for up to €900,000 life insurance without the requirement of a PMAR or ME, subject to what's referred to as a 'clean' proposal. This refers to where there are no adverse medical conditions raised on the proposal. These limits vary between companies.

Depending on the level of cover, age of client, existing medical conditions and the purpose for which the life insurance is required; the insurance company may also request a Personal Finance Questionnaire, Loan Offer Agreement, HIV Test, Fasting Blood Test or an ECG (heart test).

The insurance company reserve the right to 'load' the normal premium that would be required, for someone who is in bad health. They do this by calculating a percentage increase on the standard rate, based on the severity of the ailment. They can also postpone offering terms to a client until a future date or they can decline to offer any terms at all.

It is important to remember to submit the proposal/s to the insurance company/s as early as possible where the life insurance is required in connection with a mortgage or other credit transaction. It does take a reasonable amount of time for the insurer to gather all the medical evidence that may be required and it is very frustrating when your money is ready for collection but there is a delay on the life insurance requirement.

Mortgage Protection (Which Policy?)

When someone is taking out a mortgage and there is a requirement by the lending institution to have Mortgage Protection, the question often arises as to whether it is better to put in place a basic ‘decreasing term’ policy, with life cover only, or whether it is more advantageous to go for a policy that provides more cover than is legally required.

Up to recently, all lending institutions took an assignment over the policy so that, in the event of the early demise of the life insured, the policy benefits were paid to the bank or building society. In other words, the lending institution received the sum insured and the mortgage was cleared.

If there was any excess of cover, over and above the amount that was owed, this was then paid to the estate of the deceased person. If you missed a premium on the policy, the lender would have been notified and they in turn would have taken steps to ensure that the premium was paid and the policy kept in force.

The current requirement is that the policy must be in force at the date the mortgage is being draw down. Some lenders are no longer taking an assignment on the policy and it is totally up to you to ensure the premiums are paid and policy is current. However, it would be foolish not to keep the cover in place. It may be even irresponsible, if there is more than one person named on the mortgage and there are dependents.

Going back to the original question; it is my opinion that, in general, a policy that is needed as a requirement to a particular credit transaction should be on a stand-alone basis. If the requirement specifies Mortgage Protection Life Insurance, then this is what you should give the lending institution.

Before you apply for a mortgage, you should do your research on the different types of policies that are available. Too many people leave it till the last minute to fulfil this requirement. They end up buying a product that may not be suitable to their circumstances and pay too much for it. They do have the option of replacing the cover with something more suitable at any stage; and there is no requirement to buy the product from the bank or building society that is lending the money.

If you decide that you need (and can afford) additional cover, be it life insurance or specified illness cover, then you should factor in other cover that you may have in place already and any cover that may form part of your contract of employment e.g. death-in-service or salary protection.

I don’t like ‘bundling’ products together with the one product provider as the costs for each of the individual component parts may not be competitive in the overall picture. Others may disagree.

Indexation Caveat

If someone is considering taking out life insurance they will also have to decide if they would like to have the cover ‘index linked’. This option allows you to increase the value of the cover you are buying today so that it keeps pace with inflation.

The option does not apply to mortgage protection (decreasing term insurance) as the cover reduces over the term to reflect the decrease in the balance outstanding on your mortgage.

I did a review of the Term Insurance rates available from the life offices, based on their quotation software as at 4th July and what I found is that, choosing the lowest premium at the outset may cost you more over the full term of the policy.

All the companies surveyed increase the cover by 5% per annum but the rate of increase on the premium can vary between 5% and 8%.

What does this mean in practical terms?

On the calculation that I did, the cheapest initial premium was €30.07 per month but the premium increased at 8%. One of the more expensive products was priced at €40.55 per month and this increased at 5%.

The total premiums paid, over the term of the policy, for the ‘cheapest’ (at outset) product was €16,512.76 and the total paid for the more ‘expensive’ product was €16,095.24

What can you do?

a) Choose a higher level of cover at the outset and ignore indexation
b) Keep a close eye on the rate of increase for the premiums
c) Get a few quotes and study the ‘disclosure’ document on costs and charges
d) Ask an advisor to find the policy with the lowest ‘total premiums paid’ for the duration of the plan
e) Watch out for policies that state the increase in premium/benefit will be 5% or by such amount as the Actuary deems appropriate. This can really come back to bite you.

Mortgage Protection

This type of policy is sometimes called ‘Decreasing Term Insurance’ as the level of cover decreases as your outstanding mortgage balance decreases. It is the cheapest form of life cover available and the premium stays the same for the duration of the policy.

The majority of quotes that are issued on this type of policy make the assumption that your mortgage will be repaid if interest rates are less than or equal to 6%. If your mortgage interest rate exceeds this for a prolonged period of time, there may be a shortfall between what the policy pays out and the balance outstanding on your mortgage at the date of a claim.

With interest rates heading towards this 'threshold' rate at present it might be prudent to choose a policy that makes a higher rate assumption. Most insurers will allow you to select a rate of up to 9%. If you choose this higher rate, be prepared to pay a slightly higher premium.

There was a time when at least one insurer guaranteed to repay the mortgage irrespective of the interest rate but demand was low as consumers were unwilling to pay the additional cost which gave the absolute peace of mind. The cheapest option won on the day.

It may be time for insurers to reintroduce this guarantee on mortgage protection, as the exact direction of interest rates are uncertain. The cost of this guarantee is not prohibitive and robust competition for new business in this sector would ensure that rates remain competitive.

There is nothing worse than paying for an insurance policy that does not give you the cover that you want and leaves you out of pocket at a claim stage.

Unit Linked 'Whole of Life' Policies

There has been some coverage in the press recently regarding the workings of these type of policies, with particular attention being given as to when they are reviewed and the increases in premiums that are required to maintain the same level of cover.

I ran off some quotes for a Male & Female aged 30 next birthday, both non-smokers, €250,000 life cover on a 'Dual Life' basis over 35 years.

A Convertible Term policy would cost about €45 per month. The premium and sum insured are guaranteed for 35 years with an option to convert to another policy without medical evidence.

A Whole of Life policy will generate a 'recommended' premium of about €90 per month for the same cover. This is the premium that the quotation disc generates so that the policy would be sustainable for 35 years, assuming a growth rate of 6% on the value of units purchased. This plan will also be reviewed after 10 years and every five years thereafter to age 65. After this, it can be reviewed annually.

You don't have to have an actuarial qualification to figure out that this does not make sense. It may be time to overhaul this type of product or get rid of them altogether.

If you invested the difference in cost, €45, over the next 35 years and achieved a return of 5% net, you would generated a cash fund for yourself in the region of €50,000

Pension Term Insurance

If you are self-employed or in employment but not a member of an occupational pension scheme you can take out a Term or Convertible Term policy and claim tax relief on the premiums (subject to certain revenue maxima).

If you have a PRSA, you can set this type of insurance policy up on a stand-alone basis. You can claim tax relief on the premium, provided that you stick within the revenue maximum contributions for your age

Company Directors can also do this whilst getting the company to pay the premium.

You cannot assign this type of policy as collateral for a loan.