Cancellations, policy lapses cost insurance firms

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[UPDATED with AIA comment] Insurers are dealing with increasing numbers of policy lapses and cancellations, according to Financial Services Council data for the December 2012 quarter.

Wednesday, February 20th 2013, 6:00AM 4 Comments

Lapses outweighed new business in the quarter. 

A full $40 million in annual premiums were discontinued in the December quarter, up from $29 million in the September quarter.

That equated to 84% of total new business and contractual premium increases, up from 60% in recent quarters.

AIA in particular showed a big increase in the rate of lapses for term products this quarter, reporting $14.541 million in annual premiums discontinued, or about four times the amount of new business it wrote.AIA New Zealand says that its own rate of lapses and cancellations in the quarter is attributable primarily to a single block of business.

“This lapse was not a surprise and had been planned and provisioned for some time,” AIA chief executive Wayne Besant says. “We are focused on positive business developments in 2013 and beyond, and the strength of AIA New Zealand as a part of the group is better than ever.”

AMP reported the next highest lapse figure, at $11.149 million in annual premiums lost, about three times the value of its new business.

Pinnacle Life almost ground to a half in the quarter with lapses 10 times the size of new business written.

Kiwi Insurance wrote new business of $362,000 and had lapses of $303,000.

But overall, total premium income came in at 1.3% higher for the quarter because of contractual premium increases of 2.25%.

It was the second quarter in which Partners Life had submitted a return.

The statistics show the overall benefits paid out by insurers in the December quarter dropped to $283 million from $355 million in the September quarter.

Term insurance annual premium income, not taking into account the contribution of Partners, grew 5.1% over the year. Partners Life wrote 15% of new business, second behind Sovereign, which wrote 23%.  There was 22% more new business in the December quarter than in December 2011.

AIA had the highest risk premiums, while BNZ and Westpac had the lowest.

Sovereign dominates the market with 33% share but Partners has already accumulated 3% in its short life.

Westpac reported transfers of annual premiums from term to trauma and replacement income products.

OnePath reported some negative adjustment to previous quarters’ figures for annual premiums, particularly term, trauma and replacement income products, with a smaller positive adjustment for lump sum disablement.

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