Comparator Insurance Watch says life policyholders are paying a “loyalty tax” in the form of higher premiums for staying with their insurers.

Consumers who gave positive feedback about premiums have held their policies for about 2.7 years on average, while those who were dissatisfied have had their cover for more than 8.1 years on average, its analysis shows. 

“There are a number of reasons why this might be the case, including stepped premiums, which increase with age, and recent premium increases for some trauma, [total and permanent disability] and income protection policies,” Insurance Watch MD Wally Ripper said.

“However, these results also suggest a loyalty tax exists.”

The comparator says a review of average premiums shows there have been large drops in those available to new customers aged 45 and over in the past five years.

It says some “loyal” policyholders may not have received such benefits for a variety of reasons, including first-year discounts, which are only available to new customers.

“These discounts generally only apply in the first few years of the policy. When they drop out, premiums revert to the higher ‘standard’ rate.”

Another reason is duration-based pricing, which assumes a claim is more likely the longer a policy is in place.

“As a result, discounts are provided in the early years of a policy and then progressively removed over time,” Insurance Watch says. “Under this pricing structure, a long-term customer can end up paying more than a new customer of the same age.”

The Council of Australian Life Insurers did not comment directly on the comparator’s findings.

However, the peak body says its research has shown more than 40% of Australians want advice that is more personalised and helps them decide how much cover they need and which products are suitable for them.

“Under proposed financial advice reforms, this is the kind of advice life insurers would be able to provide to their customers when they ask for it, at no extra cost to them,” CEO Christine Cupitt told insuranceNEWS.com.au. “Under current laws, life insurers are restricted to providing advice of a general nature only, which in many cases isn’t what the customer has asked for.”

She says the industry wants to help people make informed choices by giving simple advice, including on matters of affordability.

“As life insurers, we shouldn’t be turning people away when they ring our call centres. After all, giving simple answers to simple questions is basic customer service.”