Insurers count the cost of selling whole-of-life policies (Irish Independent)
The industry was also told to get its information systems up to date after a probe by the regulator revealed huge delays in reviewing consumers' life policies.
Whole-of-life insurance has become hugely controversial in the past few years as the premiums have shot up for people as they get older, prompting consumer advocates to describe it as worthless.
Unlike other life polices, whole-of-life cover continues until death. It is sold as a combination of a savings plan and life cover. The most common form of this insurance, unit linked whole-of-life, has suffered as the premiums being put into the fund often do not cover the cost of the life cover.
As policyholders age, the cost of the life cover escalates, eating up the savings in the policy. This has prompted insurers offering whole-of-life to review the premiums and impose penal increases in the payments.
Consumers have repeatedly complained to the regulator and financial ombudsman Joe Meade that the reviews are carried out infrequently, for example, every 10 years instead of every five years. Reviewing a policy after 10 years, rather than after five, often results in enormous premium rises.
Now the Financial Regulator has bluntly told insurers that they must conduct policy reviews on time, in accordance with the terms and conditions of the products. Life companies will also be forced to make good any losses incurred by consumers where a review was not conducted on time.
"When firms have not completed reviews on time, they must ensure that policyholders were not placed in a worse financial position than if the policy review had occurred when it was due," the regulator said in a statement yesterday.
Insurance firms were also told to stop relying on manual systems to tell them when to conduct a review of premium levels.
They were also told to make it clear to customers at the point of sale that there will be a review of the premiums, and to warn that there is a risk of the premium rising.
Consumer director of the Financial Regulator, Mary O'Dea, said: "While the issues identified in this inspection have been raised with firms, policyholders also need to be aware that the premiums for unit linked whole-of-life policies are not guaranteed and can increase significantly over the life of the policy, as these policies are subject to regular reviews.
"Consumers should note that there are protection products available, for which the premiums are guaranteed not to change," Ms O'Dea added.
The regulator told consumers to ask their financial advisers whether the premium they will be paying for a product is likely to rise.
Consumers were also warned that if they partially encash a unit linked whole-of-life policy they are likely to end up facing a large increase in future premiums.