The FSCA says it will continue to ensure that insurers adopt “a fair and balanced approach” towards premium increases, while taking into account the valuable role the insurance industry has played in difficult economic circumstances.
The Ombudsman for Long-term Insurance saw a 48% increase in the number of complaints related to policy lapses last year, as policyholders struggled to pay premiums, the FSCA said in its 2022 Financial Sector Outlook Study, which was released this week.
Many large insurers have raised their provisions against Covid-19-related mortality claims, resulting in an increase in insurance premiums, particularly in the funeral policy space. Some insurers have reportedly increased the premiums on the same policy more than once in 12 months.
The FSCA said it has been engaging with the life industry to determine whether the premium increases could be substantiated. It found that most insurers were increasing premiums on the basis of their expected claims and their claims experience in the previous two years.
Engagements with the industry attempted to prevent unfair outcomes for consumers that could have resulted from policies not being priced correctly at inception, requiring “exorbitant” increases because of the impact of Covid-19 or subsequent underwriting losses, the FSCA said.
It said premium increases must be reasonable and justified by a number of factors, including expense and profit margins.
Turning to the issue of disclosure, the regulator said it was considering making it a requirement that insurers report premium increases that exceed a certain threshold to the FSCA, “in an effort to ensure that premium increases do not disadvantage policyholders and that fair and reasonable options are provided to policyholders to assist in keeping their policies”.
Other things on the FSCA’s radar
The Study noted that insurers were making increasing use of telematics and tracking devices to evaluate and monitor customers’ behaviour, to determine risk and calculate premiums and pay-outs.
The FSCA said it will continue to monitor the risks that result from tracking devices – for example, the accuracy of the data used, informed consent by customers, and the burden of compliance for customers.
The FSCA is also continuing to monitor how insurers approach Covid-related claims.
It said the rejection of Covid-related claims on the basis that the lockdown was a separate event to the pandemic was a “narrow approach” to the interpretation of policy wording that not only created risks of unfair outcomes for policyholders but could also lead to “a longer-term breakdown in public confidence and trust in the insurance industry”.
Although many of the concerns around contingent business interruption claims have been resolved, some concerns – particularly transparency and understanding of policy terms and conditions – remain with a few insurers, and the FSCA said it will continue to engage with the industry until these have been resolved.