Before July 2019, investment-linked policies were pretty unstandardised. You could ask for two quotes from two different companies with the same benefits, and one could quote a policy for much lower than the other company. If the cost of insurance is the same, then how can policies be priced differently by a considerable margin?
The answer is in the policy sustainability and the fund projection rates.
Policy sustainability
This means how long your policy is expected to last by paying the same amount. Say you’re a 25 year old person and your policy is RM 200 per month - how long would that policy last by paying the same RM 200 each month?
Previously, this was not made transparent. Internally, agents were able to quote up to a few age options, but this was not printed in the quote or the policy, so even agents have had to make guesstimates when they review those same policies in the future, based on the investment-linked fund projection table.
BNM cleaned up this mess and made it mandatory for the sustainability ages to be in print and standardized across all companies from July 2019.
So this applies for all new products that were sold after that, what about those before? For AIA customers, you can use the MyAIA app. For other companies, I’m sure it’s also available in their respective customer portals, and if it’s not, just ask the insurance company.
If you’d like to extend the sustainability age, you can do this through your agent, or directly with the insurance company.
Projection rates
Investment-linked policy pricing is dependent on the fund performance, among other factors. If the fund growth is negative year over year, then in theory, your could be asked to top-up funds to meet the shortfall of the cost of insurance. And when that happens, you’ll feel like switching insurance providers and that’s a sad situation, given that it’s not the fault of the insurance underwriting or claims but the fund manager.
If the insurance premium can be sustainable only if the fund performs at around 10% each year, but the fund underperforms, there is trouble. It seems that certain companies’ fund managers fell short of their projected returns for an extended period, and BNM has asked for maximum cap of fund growth projection rates to 5%. This is pretty conservative and can be met by the average fixed income fund, and this is to protect consumers against fund underperformance, up to a certain limit of course.
Summary
If you’ve received a quote in 2018 and compared it with one you get in 2021 for the same benefits, you’ll be puzzled why it’s gone up so much.
The combination of the sustainability tools in the quote as well as the lower ILP projection artificially increases the price of the policy, or it could also be argued that previously it was artificially cheaper given it’s dependency on the fund projection.
Insurance premiums did increase because of medical re-pricing, but apart from that, it was regulation-driven.
Wan