Why your personal insurance policy premiums just went up ~30%

Most of us have personal insurance policies either in our superannuation funds by default, or tailored policies which we applied for. Either way, these policy premiums have just jumped up in the last few weeks – in some cases they’re up about 40%. The main culprit is the rise in claims for mental health issues.

Let’s look at how these have caused premiums to rise.

Why the price rise?

Insurance is simple to understand; many people pay a small amount (premium) to cover themselves in case an unlikely event occurs (claim).

When more and more people lodge claims, the premiums increase so the insurance company can afford to pay us out if we need to claim on our insurance policy.  

Do Insurers actually payout out?

Yes, insurers pay out a lot more than most people think they do.

In 2019 insurers paid out for:

• 97% of life (death) claims 

• 90% of total and permanent disability (TPD)

• 95% of income protection policies 

• 86% of critical illness policies (heart attacks, cancer etc) 

These number show that the vast majority of claims were paid out by insurers. 

Interestingly, most Life policy claims were due to cancer; 61% for women and 39% for men.

TPD claims were mostly associated with mental disorders; 27% for women and 34% for men. For both genders that’s more than accidents and cancer.

Income protection claims were still related mostly to accidents, as you may have an accident and immediately cannot work; 38% for men and 28% for women. Most of these claims are for less than two years in total, which could be a testament to the modern health care we can receive in 2020.

22% of women and 10% of men claimed on their income protection policies for mental health issues. This is where the rapid increases which impact the premiums we’re paying, have occurred. 

How has Mental Health suddenly risen so much?

Mental Health is a serious issue; some would say a pandemic. 

During the COVID-19 pandemic, with forced lock downs, restricted social interactions, and limited time ‘out in the world’, we can all empathise with mental illness issues which we might never previously had any personal experience with. 

Diagnosing mental disorders is like diagnosing cancer 20 years ago. The ability to diagnose cancer increased significantly with medical advancements and more cancer cases were identified and treated earlier. Earlier treatment has saved many lives which would previously been lost and perhaps remain unexplained or cited as ‘old age’. 

Similarly, in 2020 we know and understand more about Mental Disorders. While there is certainly a long way to go in understanding and treating mental illness, the ability to claim on an income protection policy has increased as knowledge and understanding of the impact of mental illness has developed. 

As noted before, insurance is a group of many people paying smaller amounts for cover should an unlikely event occur. Mental disorders and now a lot less ‘unlikely’ to occur – or one could say; they are more likely. Australia is now close to having 30% of the population impacted by mental disorder at some stage in their life. With that growing metric, it’s only logical that insurance premiums have increased. 

Level Policies are also going up

When you take out an insurance policy, you can choose a premium that goes up with each birthday, or a level policy that equals out payments over the duration of the policy.  

Generally level policies are only taken out by those under 35 years of age, as they may have the policy for 30 years. They’ll pay more in the first decade, but the second and third decades will be comparatively much cheaper.

Surprisingly, the premiums of these policies are also increasing. In the fine print of the policy terms, it will state that the whole Level Policy can be readjusted in future, which is why premiums in Level Policies are also going up as mental health claims increase in society.

Get your policy Checked

Prices have changed across the board and now is a good time to get yours checked. 

Whether you only have a default policy in your Superannuation which you were given when you first opened the superannuation account, or you have bespoke (underwritten) policies, it is worth reviewing what they’re costing. 

For a complementary phone call about your insurances, book a time with Christopher Hall here.