Cheap Rate Life Insurance is increasingly just an Illusion

Price rules in the term assurance market.

Compliance, the comparison engines (such as IRESS and iPipeline), and the consolidators perpetuate the notion that cheapest is best.

Over the last two decades I’ve sat in sales a marketing meetings and heard a similar plea from the sales teams.

“We have to be competitive”

“We’ll need to be there or thereabouts”

“Top five but average third or we’re out of the race”

You’ve heard these phrases to haven’t you? You might actually have said them on occasion.

In order to keep headline prices low, providers re-tender their reinsurance frequently, and re-adjust their prices daily.

But cheap rate life insurance is increasingly just an illusion.

Despite competing fiercely for the cheapest headline rate, providers do not actually accept all clients at these rates. Ordinary rates acceptances are averaging 75% compared to 95% over a decade ago.

That means one in four clients don’t get the rate quoted.

If you went into a supermarket and one in four of the items in your trolly was incorrectly priced would you be happy? No. You’d complain. Why is it acceptable then in the protection market?

One company allegedly only takes 65% of cases at ordinary rates. That’s even worse.

In order to charge extra for the 25-35% providers have hardened their underwriting terms and routinely gather more information on applicants, either through longer application forms with reflexive questions or tele-underwriting.

It’s a strange situation that an industry that makes such a big deal out of offering the cheapest rates, actually disappoints at least one in four of its customers in this way.

Advisers and consumers constantly complain about the lengthy process brought about by this underwriting approach and clamour for simplified acceptance. But of course simplified acceptance requires a higher headline price which does not fit with the mechanics of the industry.

And the cheap headline rate prevails.

We discussed this issue at the Protection Review Conference in London recently. The majority feeling was it was wrong. But I felt little appetite to do anything about it.

How long will it be before this practice becomes unacceptable? When providers load 50% of cases? Or 60%?

There’s an opportunity to try something different here. Perhaps to introduce a pricing system where the client has a better chance of getting their quoted rate. Or a shorter application process in return for a higher start price. Launching such a proposition would be difficult given the focus of the market on headline price.

There is at least one way we could move to a shorter application form without hiking the price too much.

But is anyone brave enough to do it? And would a market that’s stuck with the illusion of cheap rates accept such a solution?

Now it’s your turn:

Do you agree that cheap rate life insurance is increasingly just an illusion? Is it acceptable that we disappoint 1 in 4 of our customers? How do we break out of this cheap rate trap? Please leave a comment or post a link to your own article.