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MLC walks MPs through pricing decisions

MLC Life Insurance has not raised premiums on its income protection products since 2015, despite the business losing money, CEO David Hackett says.

“Our income protection book had moved into loss recognition, which is actually quite a serious situation for a life insurance company,” he told the parliamentary joint committee inquiry into the life insurance industry. “That essentially says that line of business, that product, is expected to make losses for the rest of the life of the book.”

Mr Hackett says life insurers must maintain profitability, and the business it writes today means it must be around for the next 30-40 years to handle claims.

“Moving into loss recognition on a product is a very serious thing. We took advisers aside and I said, ‘We don’t have to make a lot of profit, but we can’t be in loss.’ ”

Mr Hackett says in addition to rises in the calculated premium, CPI and age-based increases are a factor. “When people are on step premiums, it can serve as a triple whammy and be a very serious increase.”

Committee member Bert van Manen expressed concern that advisers may lose out when a client says they cannot afford premiums.

He says if this occurs in the first two years of the policy, under new legislation the adviser will have to pay back two years of commission, through no fault of their own.

“The adviser, to meet his best-interests duty, is put in a situation where he has two choices,” Mr van Manen said.

“Either he lets the client cancel the policy and not replace it, or he rewrites that policy and has to do the same amount of work as he would when he first wrote that piece of business.

“Yet all the financial consequences for that rest with the adviser, in terms of having had his commission now reduced and the initial commission he got paid for doing the initial work gets clawed back by 100%.”

Mr van Manen says insurers can do what they like with premiums, but the adviser wears the cost.

Mr Hackett says some life insurers have already raised premiums in advance of the Life Insurance Framework legislation, but he admits this is a competitive disadvantage.

“We are considering at the moment how long we can hold our current pricing,” he said.

“I would like to hold it for as long as we can because that makes me more competitive. I want to write more business with more customers and I want to retain more business with more customers. And I will do that by being competitive on pricing.”

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