Could anyone not know by now that after G-Day, 20 December, insurance will be on gender neutral rates and that after the New Year a change in life office taxation increases life and critical illness rates?
Aegon will stop issuing gender-specific quotes on 15 December and complete our last cases on this basis on the 20. To complete the client or their adviser needs to have accepted the terms we have offered; agreed a start date with us; and provided a form of payment, e.g. direct debit mandate.
The terms for other insurers are similar, though the details differ.
What will influence sales volumes next year?
In my previous article I wrote that there is likely to be rate volatility at the start of next year as the large price changes caused by unisex pricing and tax changes are finessed into a competitive position at which the market can settle.
Rates will also be higher than previously, which will have a number of implications.
Finally, other factors come into play, including the impact of the RDR on advisers and customers, and socio-economic shifts.
It is not unreasonable to expect a slow start to next year as everyone reacts to the tumult of all the changes. However, the dip may be short and shallow.
The distraction of the RDR and other changes this year means that we have not seen a rush in the run-up to G-Day, so it follows the normal levels of business will still be out there in January. Rates will move around more than normal, but it will only be like doing a year’s price changes in a month, and who delays selling business for a year in the anticipation of price changes.
Finally, I know that my oh so clever pricing colleagues are geared up to react quickly to the market prices and I expect rates to settle sooner rather than later.
The rise in premium rates will reduce the opportunities to rebroke business. This will have a significant effect on some business models. Against this the RDR is driving a short-term interest in protection as a source of commission income, and a long-term recognition of the importance of protection in financial planning supported by protection experts.
I expect that the overall trend will be positive, though with significant variation between different intermediaries.
Longer term I am more optimistic. The top down drivers are positive. The well-known protection gap figures produced annually by Swiss Re currently stand at £2.4trn for life and £190bn for income protection. They are so incomprehensively huge let us just conclude that we will never run out of potential sales.
Swiss Re also produces an Insurance Report and in 2011 it researched public perception on who is responsible for different financial demands. In 2011, only 16 per cent of participants thought that individuals should be responsible for providing income if they were unable to work due to long-term illness, but they thought that by 2021 that figure would have risen to 44 per cent.
At last perception is catching up with reality that individuals should make self-provision, rather than rely on the State.
From the other direction, the increase in premium rates is likely to see premium volumes increase, even if policy numbers stay constant. The graph below shows historic and projected rates. It shows that the increases for males will wipe out about a year’s worth of historic rate cuts, while the female rates go back to those in 2008/09. However, again using Swiss Re numbers, as the market sold over 1.5 million policies in 2009 (more than in 2011), these rates should be no barrier to sales.
Life after G-Day
Life insurance will survive G-Day, even though many would argue it is trying to fix a problem that does not exist in the UK. The same can not be said if the EU decides to stop the industry pricing by age or rating by disability. We must be more effective in making our arguments another time.
On the bright side protection sales have been robust over recent years and ignoring short-term fluctuations Aegon expects to see positive growth in policy numbers and premiums from 2013, so I say bring it on!
Mark Preston is head of underwriting at Aegon UK