COMMENT
Buy Now Before Prices Rise!

By Cliff D'Arcy
December 10, 2004

Industry experts are predicting big rises in protection insurance premiums next year. So, if you're planning to insure your life, health or income, dragging your feet could cost you dearly!

There are five main reasons why the cost of protection will be hiked during 2005:

1. Rates can't go much lower

Thanks to increased competition for customers, the housing and mortgage boom, improvements in medical science, growing Internet usage, better technology and longer life spans, the cost of protection products has been falling since the early Nineties. However, premiums have been cut to the bone, and life companies are looking to improve their margins and profits. This means that the trend towards steadily falling premiums is set to reverse.

2. Insurance regulation is about to be tightened

At the moment, selling protection products can be a very low-cost business. The Internet has spawned a host of cheap, no-advice brokers that pile policies high and sell them cheap. This has been possible thanks to relatively lenient rules governing the sale of protection policies.

However, from 14 January 2005, city watchdog the Financial Services Authority is set to take over regulation of general insurance. Inevitably, this will mean tougher rules and, therefore, increased administration costs for life companies and brokers. And, of course, customers will be expected to pick up this tab!

3. Medical reports are set to become more expensive

When you apply for, say, life insurance, a life company may ask your GP for a medical report. This happens in about two out of five cases, with these reports costing around £60 to £65. However, the insurance industry expects the chancellor to impose valued added tax (VAT) at 17.5% from next April on these reports. VAT will add around £10 to £12 to the cost of these reports and, ultimately, consumers will end up footing this bill.

4. Capital adequacy ratios are set to rise

Following the near-collapse of Equitable Life, the FSA has ordered life assurers to improve their solvency by making greater reserves for future claims. Firms must improve their capital adequacy – in layman's terms, they have to keep more cash in the bank. Another problem for insurers is that they must set aside long-term reserves for every policy written, even though they know that around a third of these policies will lapse (be cancelled) in the first five years. Higher capital adequacy ratios will hit firms' profitability, so they will recoup these losses by hiking premiums.

5. Medical questionnaires are to be tightened up

The insurance industry is set to adopt a new code of practice to deal with discriminatory questions surrounding HIV. A new code of practice was released in October, which firms must adopt within a year. Essentially, this prevents insurers from discriminating against gay or bisexual people. So, insurers will not be able to ask single men questions about their sexuality, sexual history and practices, or intravenous drug use without also asking the same questions of all applicants.

And, naturally, if insurers can't use targeted questions to pinpoint high-risk applicants, they will be forced to spread this perceived risk by loading (increasing) everyone's premiums. What's more, if codes of practice or legislation prevent insurers from delving into our family history and our genetic heritage, they will react by hiking premiums across the board.

So, I don't know about you, but I'm definitely going to shop around for extra protection ASAP, as I know that I don't have sufficient cover at the moment. Likewise, if you don't have enough life cover, income protection, critical illness insurance and so on, I suggest you do the same. Don't delay – get a quote today!

More: Get a great quote from our Insurance centre | Find Cheaper Financial Protection - Today!

Many thanks to Kevin Carr at LifeSearch for virtually writing this article!