Ask an Expert: Premium loadings in the Australian market

Q: Is it common in the Australian market to apply temporary or stepped premium loadings for medical conditions, rather than a flat loading for the entire policy term?

A: Thanks for the question.

Firstly, my response to your questions are my own personal views and not necessarily the views of my employer.

There are different types of premium loadings available, depending on the medical condition. These fall under the headings of percentage loadings and per mille loadings.

Percentage loadings are applied to premium and can remain on the policy for its duration. Policy Owners can request a review of their policy terms at any time (as required by the industry’s code of conduct, known as The Life Insurance Code of Practice).

If there is improvement in the life insured’s medical condition or the condition remains stable, there may be opportunity to reduce or remove the loading entirely. The life insured should also remain compliant with any treatment prescribed.

Per mille loadings apply a dollar amount to every $1,000 of sum insured. This loading focuses on the medical condition itself, without being influenced by age or gender, as premium loadings can.

This loading also has the effect of managing the total sum insured: the higher the level cover, the more significant the additional cost becomes.

Per mille loadings are typically applied with cancer histories. As the life insured continues with remission, the loading can reduce.

To allow for flexibility, policy administration systems would need to accommodate a process where short term premium loadings and per mille loadings are reduced and removed.

Currently, evidence-based reinsurance guidelines support the underwriters in determining the type of loading to apply and the duration. 

Have a question? Ask an Expert here.

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Attributable to John O’Leary,  Underwriting Quality & Training Consultant