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Journalists hate our policy fees, and nobody knows how much we discount for volume

Diana Clement has a good article on personal finance that hammers all sorts of odd little fees in life - and nails policy fees as a good example from the insurance world. This is a genuine conundrum from insurers. On the one hand, there are real costs that apply on a per-policy basis, no matter how much the policy is for. So logically, they bundle them up and call them a policy fee. Clients, and their champions, the journalists, hate it:

Insurance companies sometime charge policy fees on top of the premium, says Walker, and it annoys him. "I have a medical insurance policy with Partners Life. I have been very happy with the insurance, but the policy fee of $14.45 per month really irks me." His 27-year-old son is on the policy. If his son was to buy his own insurance there would be two policy fees.

The example is Partners Life, but most insurers charge a policy fee. It is a useful way to keep track of different costs. It fits in with other mechanisms - like commission calculation too - and is a simple way to enable multiple life discounting, but it is poor marketing. Look at the quote above again, in effect, the clients enjoy a discount of $14.45 for paying for their insurance together. But by itemising the policy fee, we create this resentment.

On the other hand, one of our most powerful discounts - for large sums insured - is almost entirely hidden from the consumer, and they cannot see how much we are reducing their rate for buying more cover. Which is weird, its like "Sshhh, don't tell anyone how to make their cover cheaper" - and the way these discounts work, sometime people buying cover just below the discount threshold could buy more cover for less money...

A rational answer would be to disclose both, surely. 

Click here to read more.

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