Insurance premiums could rocket by 40 per cent, further widening the protection gap, if the Law Commission’s proposal to introduce a non-contestability period on insurance policies goes through.
Lifesearch head of protection strategy Kevin Carr says introducing a non-contestability period could lead to a significant rise in premiums which would price first-time buyers and low-income customers out of the market.
Carr says: “We have been talking to all the reinsurers about the impact this would have and have been warned that premium prices at the lower end of the scale could rise by as much as 40 per cent.”
If a non-contestability per-iod is introduced, consensus suggests that consumers will have to go through a more lengthy and intrusive underwriting process. Carr says this would increase the number of GP reports and medicals requested which, with additional underwriting time, could cost another £100-£200 to underwrite each case. He says minimum standard premiums would double or triple in price because it would be commercially unviable for providers to spend £200 to underwrite a small premium.
Aegon Scottish Equitable head of underwriting Matt Rann says the negatives would outweigh the positives if a non-contestability period was introduced because many consumers would not be able to afford to protect themselves.
RGA head of sales and marketing Jason Hurley says: “I could imagine a scenario where premiums rise by more than 40 per cent, maybe even by up to 60 per cent. But I could also imagine a situation where base premiums fall to below their current level.”