Policy upgrade features, the practice of updating in-force policy terms and conditions with upgraded features is relatively new. Some long-standing providers have only but recently adopted it. Due to the gradual incorporation of this feature by companies that distribute through primarily through financial advisers, many have shadowed competitors’ policy wording, and an increasing number of in-force policies now have the same terms as those issued new. Also, many benefit terms and conditions are very similar.
There are however two fundamental standards to consider:
- When did the upgrade benefit come into effect; and
- To what specified policy issue date (if any) does this benefit retrospectively apply.
We have summarised these in the table below:
For those companies with pass-back provisions extending to 2001 as a proportion of in-force books only a small minority of policies in-force will have products that do not auto update, but these may still number in the tens of thousands.
Most providers choose to extend this feature only to policies issued since the feature was introduced. Moreover, where the feature has been ‘passed-back’ to existing policy-holders, a limit has been fixed to how far back it applies. Consequently, the oldest in-force policies may be excluded from qualifying for this feature. Insurers have maintained this is a result of contractual obligations with reinsurers wherein older policies were approved on the basis of different terms and conditions than to those of newly-issued ones. Valid though it may be - insight conveys that clients who have been paying premiums for lengthy periods are, perhaps, disadvantaged. On the other hand some of these older policies retain some features that may not be available in a modern policy.
Outwardly the upgrade policy wording benefit emerges as a generous feature accentuating insurers’ commitment to recompense the loyalty of policy-holders. However, it also serves a purpose of synchronising existing products’ content with developments in the macro-environment. An insurer benefits as much as existing clients from the upgrade benefit, which enables insurers for example to:
- curtail anti-selection (where the healthier lives in an in-force product abandon it and update their cover with a competitor, leaving only an aging in-force client base)
- consolidate IT platforms where all system developments designed to manage enhanced products can also accommodate all in-force clients
- eliminate varied pricing segments for the same products - facilitating a streamlined pricing strategy
- avert excessive administrative costs which can spur from mass policy conversions by existing clients wanting enhanced products
- simplify operational processes by transferring older policies to current terms of administration
- relay consistent brand messaging and product-related publications