Australia’s financial watchdogs—the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) have released a joint update on the state of the life insurance industry following a major review launched in late 2022. This review came in response to growing consumer complaints about sharp and often unexpected premium increases, particularly among policyholders who purchased life insurance through financial advisers.
Why the Review Was Necessary: Concerns Over Premium Volatility
The regulators’ investigation focused on persistent complaints that life insurance premiums were increasing too frequently and, in many cases, not in alignment with contract terms or customer expectations. Of particular concern were “level premium” structures, which many consumers assumed would remain stable over time.
ASIC and APRA noted that “repeated and sometimes large increases to life insurance premiums were not always applied in line with policy contracts or in ways that aligned with policyholder expectations.”
In fact, by December 2024, Australians were spending around $9.4 billion annually on individually held life insurance policies sold via financial advisers, highlighting the scale and financial significance of these issues.
What’s Causing the Increase in Life Insurance Premiums?
According to insurers, a combination of factors has contributed to premium hikes in recent years, including:
- Age-based pricing
- Indexation of cover
- Adjustments in base premium rates
However, the lack of transparency around these pricing changes has led to significant policyholder dissatisfaction and confusion.
Regulators Push for Clearer Disclosure and Contract Terms
One of the key findings of the ASIC and APRA review was that disclosure practices were often too vague, leading to misunderstandings about how and when premiums could be adjusted.
In response to regulatory pressure, many life insurers reviewed historical pricing practices and have since refunded overpayments where premium hikes were found to lack contractual support.
Furthermore, insurers have taken steps to rewrite policy language, eliminating ambiguous clauses like “we may change premiums at our discretion.” These have been replaced with more specific, standalone provisions that outline exactly when and why premiums may change.
Marketing materials and point-of-sale documents have also undergone revisions. Legacy terms such as “level” and “stepped” premiums are now being phased out in favor of CALI-endorsed alternatives like “variable premium” and “variable age-stepped premium.” These updated labels aim to better reflect the true nature of premium variability and prevent consumer confusion.
Early Product Design Changes Show Promise—But Are Limited
While progress has been made in terms of communication and governance, ASIC and APRA both agree that deeper reform is required, especially in product design, to ensure premium sustainability over time.
Most insurers have already revised their Target Market Determinations (TMDs) to more accurately describe premium variability in long-term policies. However, significant product innovation remains limited.
The regulators observed that only a small number of insurers have rolled out features such as fixed premium periods or flatter pricing models. While these offerings may lead to more predictable costs for policyholders, widespread implementation across the market is still lacking.
Regulatory Pressure on Duration-Based Pricing Models
ASIC and APRA also flagged concerns about the use of duration-based pricing, a strategy where new policyholders receive discounted premiums in the early years due to recent underwriting assessments, only to experience sharp cost increases once those discounts expire.
While insurers claim these pricing strategies are aligned with risk-based pricing, the regulators insist that such models must be clearly disclosed to consumers. According to ASIC, “merely stating time-held policies may cost more is insufficient.”
They emphasized that consumers should be given enough information upfront to understand long-term cost implications, particularly for products with highly variable premiums.
Drawing Lessons from Disability Income Insurance
As the life insurance sector struggles with sustainable pricing and consumer trust, regulators recommend that companies look to the disability income insurance market for guidance. This segment has recently implemented more rigorous standards around pricing, governance, and disclosure practices that could benefit the life insurance space as well.
APRA stated that it would continue to monitor these developments as part of its ongoing supervisory responsibilities, ensuring that life insurers uphold both consumer fairness and financial stability.
Key Takeaways for Australian Policyholders and Insurers
- Premium Increases Must Be Justified: Insurers can no longer apply arbitrary hikes; every increase must have contractual backing.
- Language Clarity Is Critical: Vague terms are being replaced with clear, consumer-friendly explanations of how premiums may evolve.
- New Labels Aim to Reduce Confusion: “Level” and “stepped” premium terminology are being replaced with more accurate descriptors that reflect premium variability.
- Partial Progress on Product Redesign: While some insurers are piloting new pricing structures, industry-wide change is still in its early stages.
- Regulators Are Watching: ASIC and APRA will maintain close oversight, particularly over duration-based pricing and target market accuracy.
Final Thoughts
The joint review by ASIC and APRA has shone a spotlight on deep-rooted issues within Australia’s life insurance sector, particularly concerning premium transparency, product design, and consumer trust. While many insurers have responded with constructive reforms, such as contractual clarity, refunds for improper charges, and updated TMDs, the industry still has a long road ahead.
Consumers, on their part, should take extra care when purchasing life insurance. Ask your adviser to explain all premium variability scenarios, review policy documentation in detail, and don’t be afraid to seek second opinions.
As ASIC and APRA continue their supervisory work, the ultimate goal remains clear: to create a life insurance market that is sustainable, fair, and fully transparent for all Australians.
