Key Takeaways 

AFCA will generally recognise the right of an insurer to increase premium rates, regardless of the nature of the rate increase, if such a right is clearly set out in the policy, the notice period has been complied with and the insurer is able to demonstrate that it has increased premiums in a group (as applicable) and not singled out one particular coverage.

Brief Facts

The complainant held a combined income protection (IP) and business expenses (BE) policy with the insurer, which commenced on 9 December 1996.

The policy had a stepped premium structure, with premiums increasing each year in line with the complainant’s age. The premium also increased as the sums insured increased annually in line with the Consumer Price Index.

The complainant had not taken issue with the premiums payable until December 2020, when the monthly premiums increased from $3,273.378 to $5,815.27. The complainant alleged this increase was unfair because:

• he had not made a claim for the policy benefits for 20 years; and
• the insurer was attempting to force him to cancel the policy as he is now at an age where he might make a claim.

The complainant further submitted that the insurer had not properly exercised its contractual right to increase premiums and claimed that such a right must be exercised reasonably and on proper grounds.

The insurer submitted a breakdown of the basis for the increase between the 2019 and 2020 policy anniversary notices, which showed the main reason for the premium increase was the insurer’s decision to re-rate the policy.

The insurer also pointed to clauses in both the IP and BE policies that set out its rights to increase premiums in the following way:

Increasing your premium

We will increase your premium if you or we increase the benefit. Also, as mentioned in clause 22, when we calculate your premium rate, your premium can increase. And, regardless of your premium structure, we can increase your premium if we increase the standard premium table for all contracts like this one. We will give you one month’s notice before we do that. There are no guarantees that the premium will remain the same.

Determination 

Firstly, AFCA considered whether it was within its rules to determine a dispute related to premiums.

Of course, AFCA’s rules do not allow it to consider a complaint about premiums merely because a complainant is dissatisfied with an increase or is dissatisfied with the level by which it had increased.

However, in this case, the complainant asserted that the insurer had breached a legal obligation in increasing the premiums in the manner it did. Therefore, AFCA determined that it could consider the complaint.

On the more substantive question of whether the insurer had the contractual right to increase premiums in the way it did, AFCA determined:

• The policy provision was clear and unambiguous. It says the insurer can increase the ‘standard premium table for all contracts like this one’. If it does, it must provide one month’s notice.
• The policy provision did not place a cap on the amount by which premiums could be increased.
• The insurer was able to demonstrate that it increased premiums for all policies in a group and it did not single out the complainant for the increase.
• The insurer complied with its ongoing disclosure obligations under s1017B of the Corporations Act 2001 (Cth). Specifically, s1017B(5) which requires the insurer to give 30 days’ notice before a change, such as an increase in fees or charges, takes effect.

Implications 

The determination shows that AFCA will uphold an insurer’s right to increase premium rates provided relevant legislative (including, of course, the requirements under the Life Insurance Act 1995 (Cth), albeit not referenced in this AFCA decision) and policy obligations are met.

Interestingly, AFCA’s determination refers to APRA’s concerns regarding the sustainability of IP insurance. Whilst sustainability of IP cover was not ultimately a factor relied upon by AFCA in finding for the insurer, AFCA’s reference to sustainability at the very least indicates that AFCA is prepared to recognise the sustainability context in the context of premium rate increases. Insurers may wish to bear this in mind when facing similar complaints before AFCA.