UK insurance giant, Aviva, recently revealed plans to trial the use of postcode pricing in determining premiums for its life insurance policies.
The provider has already introduced postcode weightings on its annuity products along with several of its competitors but is leading the way by extending the use of postcodes to term life insurance. According to the insurer, a postcode rating could vary a premium by up to 10%.
Aviva claims that research by the group indicates that customers want more recognition of their personal circumstances to allow for fairer pricing and that the move is a natural progression, having used postcode as a rating factor in house and motor insurance for many years.
However critics claim that those in poorer areas perceived as being higher risk will now face higher life insurance premiums than those in more affluent areas. This is because if a client lives in an area where mortality rates are low, they will have a longer life expectancy and therefore they can benefit from a cheaper premium. On the other hand, if a client’s postcode reports a high mortality rate, they present a bigger risk to the provider, and could be quoted a higher premium based on location alone.
Given that those on low incomes are more likely to live in a deprived area, it is now far more likely they will be priced out of the market entirely. Currently low income households are the least likely to have purchased life insurance, the least likely to hold any form of protection benefit from their employer and yet tend to have a higher number of dependents.
The need for comprehensive financial protection is more important than ever and should be available and affordable to all consumers irrespective of where they live. Should Aviva’s trial filter out industry wide, this soon may no longer be the case.
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