The ABI is looking to cap the amount product providers can charge for factors such as mortality and ...
The ABI is looking to cap the amount product providers can charge for factors such as mortality and morbidity on unit-linked protection policies.
Actuaries have discretion over the charges they make on unit-linked protection plans to cover the amount of policy claims they expect due to death and illness on policies.
This is now to be capped at 120% of the claims they expect. The move is part of the association's Savings and Long Term Risk (SALTR) project, whose goal is to raise industry standards.
Mortality and morbidity charges on unit linked protection policies are made by cancelling the units invested. This is similar to reduced allocation rates used in pension products.
The proposed cap is being put together to reduce the potential life offices have for passing charges on to policyholders and disguising this as covering themselves for assumptions made about mortality and morbidity claims.
For example, it is aimed to prevent a situation where a life office expects £100 worth of claims but charges £200 to unit-linked policyholders. Under the proposals, the charge they make would be restricted to £120.
The proposals, if they receive approval after industry-wide consultation, would affect unit-linked protection policies including whole-of-life plans, long-term care, critical illness, income protection and term assurance. The move is aimed at making the charging structure on unit-linked protection policies more transparent.
Nick Kirwan, product development manager at Scottish Mutual Pegasus, believes that there may not be enough good data on susceptibility to illness to justify extending the limits to morbidity.
He said that more leeway may be needed for morbidity factors and this may lead to providers to pull out of markets such as income protection and critical illness if they want to achieve SALTR accreditation.
Under SALTR proposals brands can only receive accreditation if all products meet its standards.
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