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Policy terms allowed insurer to raise level premium rates, AFCA rules

A complainant who says he was “misled” into believing large rate increases would not occur with a level premium policy has lost his dispute.

The Australian Financial Complaints Authority (AFCA) ruled against the complainant, who disputed the premium increases that Resolution Life Australasia had applied to his income protection (IP) policy.

AFCA says the IP policy, held by the complainant since June 1994, “clearly” stated in documents sent to him that the insurer “may vary premium rates applied to the policy by providing one month’s notice”.

A copy of the policy document reproduced in the AFCA ruling states the insurer “may vary the premium rate applied to this policy by giving you one month’s notice in writing” and that “such variations would apply to all our policies of this class”.

AFCA rejected the complainant’s position that the insurer is not entitled to adjust the premiums since the policy does not define the words “vary”, “rate” or “class”.

“This is because I consider the policy wording to be clear, the words ‘vary’ ‘rate’ and ‘class’ do not require policy specific definitions and their plain and ordinary meanings apply,” AFCA said.

“The insurer has applied the premiums lawfully and in accordance with the policy terms. I am satisfied the policy wording clearly says the insurer may vary premium rates applied to the policy by providing one month’s notice.”

Resolution Life confirmed the complainant’s premiums increased because of rate reviews in April 2017, effective from April 29 2017; September 2019, effective from January 24 2020, and September 2020, effective from November 10 2020.

The insurer also provided AFCA with copies of memorandums sent to financial advisers for each year the re-rates applied. The memorandums outline the reason for the increase, who will be affected by the increase – that is, which products – and when the increase comes into effect.

“I am satisfied the information provided by the insurer is sufficient to show the premiums were increased for all contracts like the complainant’s, in line with the policy terms,” AFCA said.

AFCA says it is satisfied the letters clearly outline the reasons for the premium increases were changes to not only the premium rates but also because of CPI increases.

The dispute is part of a “large component” of life insurance disputes over level premium rate rises.

AFCA Senior Ombudsman Vicki Carter says there have been two main drivers: level premium increases and premium re-rates by life insurance over the last few years.

“It’s apparent that many complainants don’t or at least didn’t understand that level premiums can increase,” she said.

She says finding a “more appropriate” term to replace the word “level” will help to reduce the number of complaints that insurers and AFCA receive when “level” premium policies are repriced.

Click here for the ruling.