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Determination
Case number | 12-00-1018360 |
Financial firm | AIA Australia Limited |
Case number: 12-00-1018360 2 August 2024
The complainant has a crisis recovery insurance policy with level premiums. The policy has an automatic CPI increase feature, where the sum insured goes up each year, with an associated increase in premiums. The complainant says he did not get enough notice of the increase in 2021. The insurer agrees, and on 5 October 2023 offered to refund the whole annual premium, plus interest. The complainant says the insurer should also pay him compensation for his non-financial loss.
The complainant also says that because his policy has level premiums, the insurer should not have increased the premiums and the policy fee.
No. The insurer’s refund with interest, and its apology, are a reasonable and sufficient response to the lack of notice.
The insurer was entitled to increases premiums and the policy fee.
AFCA has no jurisdiction to review the level or the general fairness of an insurance premium.
The insurer acted in accordance with the policy terms and the law.
This determination is in favour of the insurer. If the complainant accepts this determination, the insurer:
No. The insurer’s refund with interest, and its apology, are a reasonable and sufficient response to the lack of notice.
The insurer was entitled to increases premiums and the policy fee.
The insurer wrote to the complainant on 5 October 2023. It said:
Our review has also found that the premium rate increase notice for 2021 was issued to you on 22 February 2022, which is not prior to the increase taking effect on 10 November 2021. We sincerely apologise for this error. In recognition of our error and in full and final resolution of this Complaint, we would like to offer a payment of $711.79 which is equivalent to a full refund of your premiums for 2021 of $639.15, plus interest of $72.64. If you agree to accept our offer as a full and final resolution of this Complaint, please complete and return the enclosed Resolution Agreement by 19 October 2023.
That is very late notice – later than is required by the policy and well after the increase took effect. The insurer had to do something to make it right.
The insurer’s refund of a full year’s premium – not just the amount of the increase – together with interest and an apology was, in my view, a reasonable and sufficient remedy for the late premium notice. The complainant is not entitled to further compensation.
The insurer also increased the complainant’s premium and policy fee (outside the usual CPI increases). The complainant says he had:
(ii) Two significant consecutive increases just within 2 years back to back for the CRISIS RECOVERY cover compounding to a 30.2% total increase on a supposedly stable level premium policy. This is not in line with the expectation and projections made for such level product at the point of sales. This is quite misleading to the consumer.
(iii) Excessive policy fees (recent 2 years compounding to 15% total increase) without restriction is unfair and disadvantaged small policy holders like me. If all product premiums assumed to be stable, the most recent policy fee ($99.92) as a percentage of the total premium paid is 19.6% which is significantly up from 11.7% in the early years. Left unchecked this could easily go up to 50% or more of the total premium paid in the foreseeable future. It is also inappropriate and unjust to benchmark CPI using an arbitrary irrelevant year that predates the beginning of my policy. This could not be standard industry practice. AIA’s actual policy fee increases would easily exceed CPI benchmark if calculation was made on a fair basis.
The complainant relies on the PDS for the policy, which says
level premium rates remain constant until the latest policy anniversary prior to the Life Insured’s 65th birthday
However, immediately after those words, the PDS says:
In addition, stepped or level premium will change if;
- you request a change in your sum insured;
- you choose to have your sum insured or insured monthly benefit automatically increased to keep pace with inflation; or
- premium rates are reviewed (my emphasis)
The policy document makes it clear that premiums, including level premiums, are not guaranteed, and may increase:
Stepped and level premiums will change if:
- You request a change in Your Sum Insured;
- You choose to have Your Sum Insured automatically increased each year to keep pace with inflation (see condition 3.16); or
- premium rates are reviewed (see Premium Rates Not Guaranteed in condition 3.5.6).
…
3.5.6 Premium Rates Not Guaranteed
The premium rates under the Policy are not guaranteed and may be varied by Us from time to time. A table of premium rates is available on request. Premium rates may not be altered for an individual policy but only for all policies in a group. Your Policy cannot be singled out for an increase. You will be notified in writing of any change in the premium prior to the change taking effect.
…
It also says that the policy fee can be increased by the insurer:
3.6.1 Policy Fee
The policy fee is currently $60 per year. The policy fee is subject to a premium frequency charge (see below). The policy fee may be changed at Our discretion. However, the policy fee at any time cannot exceed $60 increased by the percentage increase in the CPI since 1 October 2001 up to that time. You will be notified in writing of any change in the amount of the policy fee prior to the change taking effect.
The insurer says the increases were widespread and that the complainant was not singled out for an increase. Premium increases of this kind have (regrettably) been widespread in Australia over the past few years.
I am satisfied that the insurer was entitled, under the terms of the policy, to increase the premiums and the policy fee.
The complainant may disagree with the methodology in the policy for setting the policy fee, but the insurer is entitled to rely on the policy terms. The insurer has provided calculations which show the policy fee is below the limit set by the formula in the policy.
The complainant says that the label ”level premium‟ is itself misleading. The financial services regulators the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, wrote to insurers in late 2022 asking them to:
review existing product labels, considering the appropriateness of describing a product as “level premium” if there is not a high degree of confidence around premium stability.
The label “level premium” conveys the impression that premiums will be relatively stable. Compared to stepped premiums, which always increase each year, level premiums are more stable. However, recent widespread and significant increases through repricing of level premiums – such as those experience by the complainant - have eroded the stability of level premiums.
The labels “stepped premium” and “level premium” are used widely in life insurance – they are the industry standard labels. I agree that the label “level premium” may no longer be appropriate. I note that the insurance industry is moving towards adopting new labels for premiums. However, I am satisfied that the label “level premium” was lawful and consistent with good industry practice at the time the policy was sold.
AFCA has no jurisdiction to review the level or the general fairness of an insurance premium.
The insurer acted in accordance with the policy terms and the law.
The complainant bought the policy with the assistance of an insurance advisor. There is nothing to suggest the advisor was an agent of the insurer. The advisor is not a party to this complaint and I make no findings about the advisor’s conduct.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. I have reviewed and considered all of the information the parties have provided.
While the parties have raised a number of issues in their submissions, we have restricted this determination to the issues that are relevant to the outcome.
