The cheapest premiums in the life insurance market are set to rise for the first time in more than a decade, according to the broker Lifesearch, as the costs of added regulation finally begin to take their toll on the sector.
Premiums have fallen rapidly over the past 10 years due mainly to increased competition and longer life expectancies. The advance of the internet as a means for selling financial products has also helped to bring prices down, while a greater understanding of the risks of HIV and Aids helped to unwind the spike in rates that was seen in the late 1980s.
However, Lifesearch predicts that the cheapest rates available in the market could rise by as much as 10 per cent this year.
Last month, the Financial Services Authority took responsibility for the regulation of life insurance sales, increasing costs for both the distributor and the provider. This and increased solvency requirements for insurers are putting pressure on providers to raise their rates. Lifesearch says there is also the chance that from this year VAT will be charged on medical reports that doctors provide to life insurance companies. This will once again add to the costs.
Kevin Carr, the senior technical adviser for Lifesearch, said: "We've already started to see rates increase in recent years, especially for older lives and smokers, while rates for younger lives and non-smokers have continued to fall. However, we believe that life cover premiums could rise across the board in 2005.
"Advances in both technology and medical science can be hard to predict. Both will play a significant part in the future pricing of premiums."
Ron Wheatcroft, a technical manager for Swiss Re, said: "2005 will be an important year for the UK protection industry. The new regulatory environment and increases in the cost of medical evidence will contribute to cost pressures. It is, however, too early to determine how much of this will be passed on to the consumer."Reuse content