An MLC life insurance customer whose premium rose more than 700% in 14 years has lost a dispute after seeking a refund of premiums paid.

When the policy commenced in 2005, the customer paid $93.92 in monthly premium for a benefit of $40,000. The premium increased every year and so did the benefit. When he terminated the policy in September last year, he was paying $790.41 every month with the benefit set at $72,637.

The premium hike came to 742% while the benefit increased by 82% over the life of the policy.

The customer told the Australian Financial Complaints Authority (AFCA) the increases were unreasonable, citing a number of reasons to support his claim.

He says MLC did not inform him about the annual premium increase when he took out his policy, the policy benefit has not been raised by the same amount, the increments made the policy unaffordable and that the increases exceeded the Consumer Price Index.

But AFCA does not agree after reviewing the supporting documents from MLC, which has maintained the premiums were correctly calculated in accordance with the policy and that the complainant was not entitled to a refund.

The documents provided to AFCA showed, among other things, that the policy terms allowed for premiums to change each year due to the age of the insured, inflation and the insurer’s premium rates.

In the complainant’s case, his premiums were calculated using a “stepped premium” structure, one of three methods used by MLC to review policy premium every year.

While the customer’s application form did not say which premium structure he had chosen, the policy schedules provided from 2010 to 2019 showed his cover had a stepped premium.

AFCA says there is no evidence he had applied for a policy with a decreasing cover, where benefits decrease each year due to the age of the insured.

It also ruled out the possibility that the customer may have applied for a level premium as the product disclosure document states this price structure was for insureds aged 15 to 54. The customer was 69 when he applied for the policy in April 2005.

“Based on the available evidence, I am satisfied that the complainant’s policy had a stepped premium," the AFCA ombudsman said. “The policy terms say that if the policy has a stepped premium, the premiums may increase each year with the age of the insured.

“The insurer increased the complainant’s premiums due to his age, inflation, and changes in its premium rates. This is consistent with the terms of the policy.”

AFCA made the ruling based on its remit, which allows the external dispute mediator to consider whether premiums are correctly applied and disclosed to a complainant. It cannot consider whether premiums are affordable or how policies compare with other similar products in the market.

AFCA in its ruling also states the insurer did not mislead the customer as the documents do not provide false information about the premiums.

Additionally the customer received letters every year from MLC about his policy schedules with an option to reject the inflation-linked increases but there was no evidence he had chosen to inform the insurer he did not want his premium to increase.

Click here for the determination.