Your insurance policy is protecting you, but who is protecting your insurance policy?

At this time of economic uncertainty it is important to understand the safety nets that exist to guarantee your insurance policy is safe in the hands of your insurer.

The insurance companies within Australia remain strong and well capitalized. The financial issues of an insurer, or their parent company, do not necessarily affect the insurance company’s ability to pay claims or accept new policies.

There are stringent regulations within Australia that ensure the assets of an insurance company are there to back you up. You are protected. Your policies are safe.

This security stems from the fact that the life insurance industry is protected by its own special Act of Parliament. This forces insurance companies to place funds into an account (called a statutory fund) that cannot be accessed by the company to use as operating funds or distribute to shareholders, until all appropriate allowances have been made for a reasonable level of ‘expected’ claims and claim expenses.

The amount to be held in the account is determined by an appointed actuary who is responsible for periodically calculating the expected claim rates, and expected returns on premiums, which are conservatively invested to earn interest while in the statutory funds. The actuary’s responsibility is to report to the regulator first and foremost, and the company second.

More recently, there were amendments made to the Life Insurance Act in the mid 90s that require a judicial manager to be allocated to the insurance company if they are unable to operate. The manager’s key role is to arrange for other insurers to take on the existing policies and claims.

This system has already been put into practice and has saved thousands of policyholders whose insurance is now held by a new insurer, when two companies in the industry were affected by fraudulent misappropriation of funds in the late 80s. Insurance companies taking over another insurer’s policies are bound by the terms of the existing contract, including those that currently apply to your own policy.

Spreading risk is a critical fundamental of risk management, and as an added level of protection, most often the overall life insurance risk is “reinsured”. Reinsurance involves the spreading of losses across a number of insurers, so that the losses from a small number of individual insurers are covered by premiums charged across the whole pool.

At Perks Wealth Management, we do keep a close eye on the financial strength, amongst a whole range of other things, of any insurer that we recommend and are confident in the choices we make.

Prior to acting on the above information please speak with your financial adviser and/or taxation accountant, so they can assess your situation and evaluate the relevance of this information in relation to your current circumstances.

For more information about Perks Wealth Management and Personal Insurance, please call 8273 9200 or email pedmonds@perks.com.au

Perks Wealth Management Pty Ltd
ABN: 88 086 643 058
Australian Financial Services Licence No: 236551

31st March 2009

Adelaide
247 Fullarton Road
Eastwood SA 5063
T: (08) 8273 9300
F: (08) 8274 1466
Web: perks.com.au

Victor Harbor
163 Hindmarsh Road
Victor Harbor SA 5211
T: (08) 8552 3711
F: (08) 8552 3771

Darwin
59 Smith Street
Darwin NT 0800
T: (08) 8941 8600
F: (08) 8941 9600

Alice Springs
73 Hartley Street
Alice Springs NT 0870
T: (08) 8953 4400
F: (08) 8953 4599