Partners Life defends premium increases
Partners Life has defended the upcoming changes to its premium structure saying they are a "normal aspect of the insurance market that we operate in".
Friday, December 10th 2021, 4:12PM 
20 Comments
by Matthew Martin
Earlier this week the life insurer said that over the past 19 months it had paid out more in claims than expected and would increase its Yearly Renewal Term (YRT) policy premiums by an average of six to seven per cent from February 21 next year.
Chief commercial officer Tony Arthur said over the past 10 years the company had collected enough data that "...we now have the level of insight where we can appropriately price the client demographic to make sure that we are applying the most accurate price of risk by each customer group".
"It's important to remember it's been almost two years since our last YLT pricing changes and pricing changes like this are a normal aspect of the insurance market that we operate in."
Partners Life chief actuary Anton Gardiner said the firm was not afraid to make tough calls but were "very transparent when we do that".
"For some product lines we are paying more than we expect...and we found quite a high level of cross-subsidisation both across products and within products.
"For our products to be sustainable we had to start to address some of this cross-subsidisation.
"It's important that each product can support itself on its own - particularly for trauma and disability...we were getting a lot more claims than we expected in certain age groups."
An example of this was for trauma claims for women aged 40 to 49 where Partners has paid out over 20% more than it expected to pay.
There has been mixed reaction to the changes with some readers saying it will be hard for advisers to explain the increases to their clients.
"They have top-rated products in the market but not sure that is 'best' for customers if they get smashed with these premium increases," says one.
Another reader said there could be an element of tall poppy syndrome around the criticism of Partners Life.
"PL has been a fast-growing, innovative company and no one could reasonably fail to be impressed by the innovation they have bought to the market.
"It would appear PL clients are now paying the price for some of the underwriting and possibly even the product features - a message to those who think it is all about product (there has to be a balance with price, sustainability, service and claims approach)."
One reader felt Partners Life took on too many marginal customers.
"A few of us may remember placing business with PL when other providers excluded or loaded. Why, because we could get better terms and conditions. It was in our client's best interest then, but now?"
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Comments from our readers
On 11 December 2021 at 4:01 pm red grass said:
The market needs PL so hopefully they will learn from this mistake and move on. Quality underwriting and accurate pricing is important given it took ages to find the issue.
These premium increases impact a much wider group than the double vaxx question which is probably covered by co-morbidities.
I am sure PL will learn from this.
On 12 December 2021 at 11:26 am j weiner said:
Yep PL have been good for the industry but made a mistake, corrected and now move on.
We miss Graeme Lindsay’s insights into this. Other commentators seem to be more concerned about one extra question on app forms which is largely covered by other mitigants.
On 12 December 2021 at 11:37 am c wade said:
PL have been pretty open and up front.
I am struggling why it took so long for PL to identify and fix whilst advisers where left to quote on the old rates.
The market will decide and there is choice. Shows the benefit of a client using an adviser as they can test the market unlike with tied agents or with a bank.
Some healthy customers may move.
The secret sauce claims from PL were almost a predictor of something going wrong.
On 13 December 2021 at 9:25 am j foster said:
Good debate and some great themes highlighted
Competition is important - PL had been a great addition to the market and have innovated providing choice for customers and advisers.
Advice and options are key - companies change and impose new pricing. Customers benefit from having an adviser who can test the market. If this was a bank increasing pricing or back in the day say AMP with tied agents then it would be a potentially worse outcome for customers.
Insurers need to price and assess risk - the purpose of insurance is partly to reduce uncertainty. But large price rises and having premiums quite different from those quoted creates uncertainty. PL may have to consider how they assess risk / underwrite if their claims are so out of line with the industry. No problem with PL addressing this issue but why has it taken so long?
Customers have choice (the healthy ones anyway) - let us hope PL does not get left with unhealthy customers..
PL have made few mistakes and they are fronting up to this but one hopes they learn and are more humble. At least they will not use that silly secret sauce claim again.
On 13 December 2021 at 11:15 am JPHale said:
TBH I'm not surprised with this news, it was largely inevitable as Partners Life has a newer book and it has been created in a market that had an increase on advice to consumers, so clients are going to have increased uptake on products traditionally not implemented and more appropriate for them.
Disability for females is one of those things the other providers don't have quite the historical book on. Also, social changes with more career-minded women in higher-paying roles that see protecting themselves with disability cover as important. Especially those that are single with kids. And this has been a significant growth market.
So the correlation to people who are more likely to get issues checked out and potentially claim more on disability cover is not a surprise in the slightest. (Yes the females, men ignore it and we see trauma and life claims)
The problem becomes the equality one, where the premium for females against males in the 40-50 age group is already substantially more expensive across the industry.
Partners Life taking a position on what this is driven by data only shows that the other insurers are either not looking at these trends or they have their significantly older male disability book hedging the costs this sector of the community is driving claims. Either way this issue is coming to all insurers.
Partners Life have said in the past that they had substantially more claims than expected, this is suggesting that the increase wasn't necessarily more issues but a significant change in the demographics claiming, so here's that proof.
On 13 December 2021 at 1:55 pm red grass said:
@JP Good point but you seem to missing the whole picture of data and focusing on a small component. You have to be careful going down a rabbit hole
Good call about female trauma and disability but sure you will find most of the clients impacted are life customers. Overall mortality has been improving so the price rise implies their claims are worse than the industry.
Are you seriously saying the rest of the industry has this wrong and PL have some amazing insights. They have done many things well but pricing for claims seems to have been an issue.
Good on you for being the cheerleader for PL on this and the double vaxx question (where wait and see seems the obvious evidence and data approach) as they are good for the market.
On 13 December 2021 at 5:27 pm k glynn said:
@JPHale
Fair go to defend PL and good attempt to explain.
But you seem to ignore the price rises for life cover. And instead focus on a small part of the data.
You mention possible causes of the female trauma / disability experience. Nice hypothesis and it may be correct but you fail to mention a driver could be looser underwriting.
Other insurers may just have better claims.
You have a right to believe PL have a secret sauce but always good to challenge oneself.
On 14 December 2021 at 8:03 am Backstage said:
Goodness me, this is not new information and insurers have been challenged for years on whether they community price to smooth out bumps or pick on segments with some justification.
AMP tried picking on segments with their term pricing years ago and their lunch got gobbled up.
Back to PL, this information is not some new insight or unforeseen probability but of course a good story is what is needed to square off increases. I believe they would have done better with a general increase, let's see.
On 14 December 2021 at 8:37 am wilf said:
Well said @backstage although nothing wrong with ending cross subsidies. The story is largely a price rise one.
@JPH your comments are generally thought out but here you seem to have fallen for some anchoring bias. PL gave out a piece of information on a small segment and you have relied heavily on this first info you were given about the topic. Suggest you take a step back and think about the overall large increase especially for life cover.
On 14 December 2021 at 1:41 pm JPHale said:
@ the commentators, the assumption is I'm using a small piece of data and not the two decades of data I have had access to that assists with the comments I have made.
It wasn't a defence of PL it was supporting what they said as the reality of where the market is likely to go. And, past history has shown that the majority of providers have moved in step with PL's insights.
Frankly, I'm going to have a lot of conversations where the client will be wanting to take a different position to their current one.
And the combination of high premiums for females in disability covers and the stance on self-employed cover security, PL is likely not the place those clients will end up.
It's called the market at work, and I've seen many advisers practices where the higher-earning female demographic is underrepresented with disability cover.
Though most advisers seem to think I'm a little crazy and unhinged with where I make statements, only to find some months/years down the track I was kinda right... That's because I take a data-driven approach to this stuff, it's sorta what we should be doing. Product research is not just a tick box exercise, it actually serves a purpose.
So I'll take a little more time to spell it out to those in the back ;)
Marriage rates are declining, separation and divorce rates are as high as they have ever been. Single parents with kids or blended families are somewhat the norm, just as much as couples with their own kids are.
If your base doesn't have a significant representation of single parents with kids, then you're missing out on a significant part of the market. And some of that is to do with our image as advisers for the females. Old overweight white guys...
Also, some of that is advisers picking their niche and working to that, but beware the SWOT analysis on your business when the market has and is changing.
We've heard for years that the disability product space has been under pressure, the reality is this is just another cut of the same cloth to target the ones where claims are coming from.
Is that selective, yup, is that what insurance and risk management are about? yup. So it's no surprise that this is the response from PL.
If you look around PL has a book that is 10 years old, the rest have disability books that are nearly 20 years old to 45 + years old. The rest have a historic tail of pretty stable products that don't have the more recent specific demographic change aspects happening, yet. Understanding math and averages are needed here ;)
So no, it's neither rocket science nor single data points, but paying attention and thinking about what is going on. ;)
On 14 December 2021 at 7:12 pm Amused said:
We have to start looking at the big picture here which is advisers potentially writing less business in the future and fewer of our clients having a decent level of cover for themselves and their families. Neither of these scenarios sound very appealing. Advisers don't need to be told the impact which this will have on their businesses.
Perhaps as an industry in order to continue remaining "sustainable" we need to start having some hard conversations now about what action can be taken to mitigate these premium increases i.e. override payments been paid to third parties who are not even part of the advice process. Mammoth amounts of overrides are still paid by certain life insurance companies in New Zealand annually.
Until recently advisers were not even eligible to receive these payments (Partners Life have now renamed them FAPO) so I don't think too many advisers would care if they were scrapped if it helped towards keeping premiums for their clients affordable. The removal of the override payments completely would be one less cost for those particular insurers to bear.
I challenge any adviser with their new disclosure obligations in mind to explain to their client whose monthly premium has spiked why these override payments, which in many instances are still going to third parties, remain defensible.
On 15 December 2021 at 11:00 am JPHale said:
@amused well said, and part of the reason my business strategy has been to manage discounting for clients once they commit to higher premiums.
The long term impact of this has been a very stable client base, grumbles about premium increases sure, but substantially better retention when alternative retail premiums are considered. The funny thing is with discounting and time, even alternative discounted providers aren't necessarily any cheaper.
Understanding what your business needs for income means you have more flexibility in advising and arranging covers for clients that they can hold and be utilised long term in a changing market.
Discounting was something I dismissed initially, it was only once the financial model for the business was explored fully that the approach became one that is substantially better than the upfront model. And no I'm not talking pendulum either.
On 15 December 2021 at 11:29 am valkyrie6 said:
PL are a business not a charity and like any well-run sustainable business profit is the key.
The retail costs for products and services have always been governed by the wiliness to pay, no different to house prices, when enough consumers say: I’m not going to pay for that its to expensive “’ then product providers will re-evaluate their offer, premiums just can’t keep rising for ever can they?
On 15 December 2021 at 1:34 pm Matron said:
If everything had gone to plan the PL IPO would have already happened just after the BNZ Life purchase. No doubt that Blackstone have determined they have waited long enough for a better return, hence the rate increases. On 15 December 2021 at 1:41 pm Murray Weatherston said:
It is hard to imagine any individual insurance company being the first mover to cut commissions.
But I am sure they go to bed every night praying for the regulators to step in and set a cap on commissions. That allows the insurers to say "we didn't want to, but the Government has made us".
Regulators seemed to be hung up against volume based incentives, and have acted against them.
But they have ignored the level of flat rate commissions. I wonder when some bright young thing in MBIE might have a light bulb moment and galvanise action against 200-256% up fronts.
If I were a consumers' advocate, the only question I would hammer Dr Clark with is "is that level of commission.
fair?"
One final point - don't discounted commission premiums increase at the same % each year as the undiscounted premiums?
On 15 December 2021 at 6:52 pm k glynn said:
Well said Matron and DW
JPH makes some points but they seem to be nothing new and largely a deflection. We all know disability claims are on an upward trajectory and the evidence is industry experience tables from reinsurers - the secret sauce JP and partners have is something that is not evidenced - we need proper evidence not hearsay.
Forget the conspiracy theories and the supposed
20 years of data.
The statistics show the general population and insured lifes are living longer yet we are seeing YRY price rises.
PL have been great for the market but let us not forget they are owned by a US venture capital
Business who seek large profits.
This Is is clearly the driver
On 16 December 2021 at 10:29 am JPHale said:
@Murray yes, discounted premiums continue to increase at a similar percentage to undiscounted, the difference being they remain more affordable (the price point where punters call enough already) and these they how more significant cover longer, which means that it is more likely to be there when they need to claim.
Would the client have taken the original cover at the undiscounted premium at the point of sale, probably, but they would have reduced, cancelled, moved much sooner than with the discounted premiums.
This has resulted in clients holding cover longer and having claims paid that they would not have otherwise had cover for, and that continued holding of cover comes with trail commissions (for service) that more than makeup for the discounts taken at point of sale.
In other comments, interestingly there has been comment about life rates increasing, and they may be, but PL didn't actually say life premiums in their statement. They said yearly renewable term rates, which is the whole product range, not just life cover.
So back to my original statement, data-driven risk management from a new company should not surprise anyone, and the older books don't have the same detail in data (having seen the reporting they have available) and they have substantial existing books that more recent changes in demographics haven't yet impacted substantially.
There are a lot of assumptions in what PL have said, but there is largely little meat in their statements to really judge what the impact is going to be. But impact it will.
So yeah, I don't know anything ;) keep telling yourself that while you get run over in the traffic...
On 16 December 2021 at 4:03 pm HP said:
I wonder if there was also another reason that was missing from PL's pricing decision. In September, when we went into the most recent lock down Partners said that they were looking hard at their lock down support package, which previously had been incredibly generous and in hindsight totally unnecessary.
Naomi went on to say it had been abused with an enomormous cost to PL. This along with the initial lock down and the hit on new business was described by Naomi in the video as "substantial," including hitting "shareholder's return" and "ultimatly that sort of extra cost will have an impact on the premiums that all customers will be charged."
It is quite possible these comments relate to not making the same generous offer again. But it may be a case that PL need to recoup some of that previous impact.
Regardless of this they might need to improve on their special sauce recipe if their competitors don't follow them.
On 17 December 2021 at 9:20 am c wade said:
This has been a useful debate.
Easy to say (hard I suspect to do) but product providers need to get pricing right and having large increases create issues. For customers facing inflationary pressures elsewhere it creates a shock, for advisers they have to explain and support the customer and for the product provider they are at risk of the healthy lives leaving and a spiral of increases.
Reinsurers, APRA, underwriters and advisers have being saying there are some societal change issues that are creating upward pressure on disability and trauma (mental health and some of the matters raised by JP).
If insurers keep raising prices and improving benefits there will be an affordability issue.
No one outside PL knows what really drove PL to undertake such large increases. It could be the impact of previous loose underwriting, it could be a need to recoup the cost of the lockdown package, maybe the venture capital owners are just insisting on a better return. However it could be that PL are ahead of others and reacting to societal change.
If competitors do not follow then PL will have to manage the consequences if they are left with unhealthy lives.
The secret sauce comments have an element of humour but are sad. Anyone claiming a secret sauce does show a level of arrogance and hubris often precedes a fall. However PL have done so many positive things in the market it does seem a tad harsh to bring this up.
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Such steep price changes are significant though and the PL halo is somewhat diminished.
The PL comments by the CFO claiming they had a secret sauce seemed arrogant.
Advisers will have to face difficult conversations to explain the large increases.
Let us hope PL learn from this and also explain the basis for the average quoted.