Discounted premiums won’t last

Consumers shopping for insurance are being told to ask what their premiums might be in future years – not just the first year quoted.

Insurance expert Michael Naylor, of Massey University, said it was common for insurers to advertise a discounted first-year premium.

‘‘That is all that consumers tend to look at. Premiums then rise over time.’’

He said international research has shown that led to ‘‘disgruntlement’’ after about five years and cancellation after seven.

‘‘Given that New Zealand’s unusually high up-front [adviser] commissions mean that insurers don’t tend to make back the cost of client acquisition before the six or seven-year mark, it is a major industry issue, as it leads to excessive churn.’’

Online insurance sites offer cashbacks and discounts of up to 30 per cent in the first year of a policy. Insurers themselves sometimes discount first-year premiums by about 10 per cent.

Naomi Ballantyne, managing director of Partners Life, said the problem was that when discounting came off, it meant a significant jump in price.

‘‘This can result in a seemingly cheap premium in year one and then a substantial increase in a future year when the client ticks over into an age that the company believes represents significantly higher risk,’’ she said.

Industry commentator Russell Hutchinson, of Chatswood Consulting, said as people aged it became harder to shift to a new insurer.

‘‘I have pre-existing conditions; the terms offered by a new insurer are almost certain to be worse than my current insurer, if indeed they would insure me at all. As everyone gets older, that’s true for more and more people.’’

Susan Edmunds