Don't have life insurance? If you don't pick up a policy before the turn of the year, you'll pay for it.
Life insurance was always a glimmer of good value in an otherwise expensive sector.
But that may not be the case for much longer.
Yes, the cover that has been falling in cost for the past thirty years is about to price up. It’s all thanks to a perfect storm of four factors that will substantially push up premiums over the next 12 months.
1. Gender ruling
The much maligned gender ruling handed down last year by the European Court of Justice is set to come into force in December. The verdict means that insurers can no longer take gender into account when determining premiums. And while the decision has huge implications for car insurance, it will also radically alter life insurance rates.
As it stands, women pay less for life insurance than men. This is for the simple reason that the female of our species lives longer than the male. Hence, insurers expect to get more monthly premiums from a woman before they have to pay out on the person’s death.
But from the 21st December, pricing gender into premiums will be banned. Inevitably, women will end up paying more as their life expectancy trump card is blotted out. In response to this price rise, you may expect premiums for men to fall. But there’s a good chance they won’t. This is because of the admin costs caused by the changes, which will be soaked up by insurers and may wipe out any price drops.
Protection insiders are also expecting many insurers to scrap the 30-day price guarantee currently granted to most policies as the 21 December deadline edges closer. Premiums may also start to ramp up in the months ahead of the legislation’s introduction as insurers prepare for the change.
Needless to say, the protection sector is not happy about the ruling. As one industry figure put it: “Two hippies in Brussels have spoilt it for everyone.”
2. Retail Distribution Review
The Retail Distribution Review, or RDR, is a regulatory revamp being pushed through by the Financial Services Authority (FSA). The key aim of the review is to ensure consumers are offered fairness and transparency when buying financial products. A vital part of achieving this is changing the way financial advisers are regulated.
But these alterations come at a price. The FSA recently said that it would need a 15.6% increase in funding in 2012/13. This will cause fee levels for insurers and other FSA-regulated companies to increase. Kevin Carr, a protection specialist who runs his own consultancy, estimates that the review will cost the industry £3.6 billion over the next ten years.
It’s highly likely that these increased industry costs will trickle down into higher premiums for the consumer. And to add insult to injury, the RDR is set to come into force less than a fortnight after the gender directive, on 31st December 2012.
3. Tax changes
Another change coming in from January 2013 concerns the tax arrangements of protection companies. Broadly, the move will change the current system where businesses are only taxed on their profits. So the companies that will suffer the most are the protection providers that offer life insurance policies which come with an investment element.
This increased tax bill could well trickle down to the customer in the form of higher premiums. Andy Milburn, head of marketing at Ageas Protect, estimates that the change could increase costs for consumers by 10% across the sector, with the exception of income protection which should stay fairly level.
4. Solvency II
Solvency II is another set of guidelines handed down from the EU. Essentially, it forces protection providers to keep more cash in the bank to guard against potential business problems. The guidelines are often referred to as ‘Basel for insurers’ – a nod to the Basel frameworks that force banks to store more capital.
The aim of Solvency II is to guard against a credit crunch style crash by ensuring businesses carry enough capital to guard against bankruptcy. However, this will eat into the profits of insurers and mean that premiums will probably go up.
The only slight relief is that Solvency II is not due to come in until January 2014. But that still shouldn’t stop you getting hold of life insurance as soon as possible.
When to buy
The exact amount life insurance premiums will rise by is tricky to predict – though many sector figures place it around the 30% mark.
The protection industry is also expecting a busy fourth quarter as the perfect storm of the gender ruling, RDR and tax changes – along with several more articles like these urging you buy before prices rise – take hold. This increase in business could also add to premium rises, giving you yet another reason to act now if you haven’t got a policy.
Head over to our life insurance calculator now to get hold of a quote quickly and easily.
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