Australian Broker forum is the place for positive industry interaction and welcomes your professional and informed opinion.

LMI premium increases a 'slap in the face,' says veteran broker

Notify me of new replies via email
Australian Broker | 08 Apr 2013, 08:00 AM Agree 0
Recent LMI premium increases made by one major insurance provider have one broker fuming
  • Regional broker | 08 Apr 2013, 11:24 AM Agree 0
    When you have a duopoly in the Loan Mortgage market they dont compete with one another, just follow the lead of the other. LMI has been an area where the Banks wont complain as they pass the increase onto the client. Rather than having a broker market that is constantly under the microscope of the governing bodies, how about the consumer watch dog investigate into the actions/activites of the companies in the loan mortgage insurance market. They have had a free rdie for so long, now is the time to investigate their charges.!!
  • David C | 08 Apr 2013, 11:26 AM Agree 0
    I wonder if their data dating from 1965 shows that, historically, property values increase? This, coupled with reducing debt, means the "risk" they cover is reducing year by year.
    I don't know if they are aware that the premium being capitalised onto the loan is also charged interest, so customer is paying on top of actual premium amount.
    I understand that they have a vital place in the market but they need to justify their premium calculations.
  • Chris Incogneto | 08 Apr 2013, 11:31 AM Agree 0
    If you quote 1 cup of coffee per day over 10 years then a loan which is terminated in 5 years should get a 50% refund on the premuim?

    Furthermore why can't a borrower change lender whilst remaining insured with the same insurer without paying a second premium?

    The mortgage insurance industry is far more concentrated than the banking industry and is in much greater need of competition.
  • NoTimeLikeTheFuture | 08 Apr 2013, 11:33 AM Agree 0
    I have long suspected absolute gouging:

    From Bloomberg

    "The Australian mortgage-guaranty unit’s (Genworth Aus) profit climbed 15 percent to $62 million in the fourth quarter. Klein said in October that a partial sale of the unit probably won’t occur until late 2013."

    Smells like economic rent / superprofit to me.

    We need ACCC and Choice Magazine's involvement.

    Barriers to entry for this market need urgent attention
  • Country Broker | 08 Apr 2013, 12:14 PM Agree 0
    These increases are truly "gouging" , yes everyone needs to make a profit , the LMI market is a Duoopoly and they can really name their own prices . The ACCC needs to look at this.
    We also need to see the Federal Goverment restart to old HLIC and reenter the LMI market .
  • Keith B | 08 Apr 2013, 12:24 PM Agree 0
    This pricing structure has been going since Adam was a boy, the underwriters' watch each other, and probably draw straws to which one announces an increase first, and magically the competitiors follow suit in the weeks following...
  • AaronG | 08 Apr 2013, 12:26 PM Agree 0
    Are we suddenly a bunch of Commies complaining about this? Why the heck shouldn't the insurers be able to set their own prices? In fact, until recently they couldn't discriminate between a shaky deal and a rock solid deal and charge accordingly, so they just didn't do the shaky deals. Is that what brokers want? So what if they are making money out of this? Good, and if you really believe that, buy stock in their company. At least more deals will be getting approved under a rate for risk situation. Its pretty simple business economics. I say bring it on. Rate for risk. That is what insurance is, by the way. What we had prior to the NCCP (which I hate, except for this) was a situation where insurers weren't allowed to price diifferently due to the big clumsy hand of government stopping them. How is that insurance? If you are a better prospect, you should pay less than a poor prospect.
  • Greg Clough | 08 Apr 2013, 12:34 PM Agree 0
    LMI has been an issue forever and this is just another example of their arrogance and greed. Question I have is there any other deal between LIMI's and the Banks we're not told about? Surely it's an industry body issue as well or does sponsorship create a conflict. Well spoken Kevin.
  • Mini Broker Pakenham vic | 08 Apr 2013, 12:40 PM Agree 0
    So the premium is capitalised onto the loan ! and Brokers should realise it / isn't that further gouging ? Oh silly me, Our client should be able to afford it better that way. The $10K premium is in the pocket of the greedy insurer. it is then doubled over the term of the loan and of course there has to be a cut for their fat Cat friends the lender. good explanation we should all be happy now
  • Raman Arun | 08 Apr 2013, 12:48 PM Agree 0
    I have to agree with the concerns of all the respondents that the Aussie consumer is being taken for a ride by this greedy insurance firm while there should be significant cuts passed on to banks in this day robbery as we don't see any resistance coming from the lenders. When the loan gets refinanced, the LMI in place simply evaporates even if the new lender would use the same insurer; this is acting as a big deterrent to consider refinancing and 'freedom of choice' becomes a joke. How's Genworth's balance sheet been looking? Certainly a case for the Consumer watchdog!
  • OzBoy | 08 Apr 2013, 12:49 PM Agree 0
    This cracked me up "We need ACCC and Choice Magazine's involvement."

    One will write about it the other will read it and nothing will happen!
  • John Gold Coast Loan Broker | 08 Apr 2013, 01:00 PM Agree 0
    The fundamental concept of insurance is where 100 parties establish the risk and price the premium to cover the eventuality of a payout. Simple, so therefore the premium will reflect the amount of claims being made in that arena. As far as I am aware there is not 1% of forclosures, more like 0.3%, so how is it that the insurer can require over 1% of the borrowed amount?
    Someone originally agreed to privatise LMI and a figure was arrived at. Lets have the ACCC investigate the gouging of the mortgage insurers, also since mortgage brokers are portrayed as cowboys, then lets see what the lenders should be portrayed as.
    During the GFC our banks all made major profits. The government have lowered the interest rate to stimulate business, and the banks have not passed on the reductions, speaking on higher costs.
    Who is running this country anyway?
  • Donut | 08 Apr 2013, 01:16 PM Agree 0
    Gouging is a good description of this behavior.
  • Broker | 08 Apr 2013, 06:27 PM Agree 0
    Must be due to the "cost of funds" so to speak!
  • Maria Rigoni | 09 Apr 2013, 01:02 AM Agree 0
    People in the finance/mortgage broker industry have an opportunity to say enough is enough and support the Bank Reform Party in its political will to change things for them. The broker who is a sub contractor is not covered by Fair Work Australia and has no rights because they agree to be bound by the remuneration agreement the lender makes with the aggregator. Most people employed in the broking industry are subjected to disgusting treatment by lenders who can without recourse overnight cut income and place whatever demands they want at their whim and then the lenders can take back the money paid for the work completed for up to 24 months. The anti competitive element of being punished for moving clients to a better deal is evident. I do not believe it is OK for a broker to have their remuneration taken back for whatever reason a borrower decides to repay their loan. Did anyone see the 7.30 report last Thursday night about Bank Dominance...

  • SIDBROKER | 09 Apr 2013, 09:11 AM Agree 0
    Why do any of you suggest ACCC involvement. Come on get real. There all out to a long lunch/s. Also to John Gold Coast, The govt. don`t lower interest rates the reseve bank handle that of rather screw it up. The Fed. Govt. needs to have power of veto when the RBA holds back as they always do under current managment.
  • Mega Broker | 09 Apr 2013, 10:46 AM Agree 0
    I personally have no issues with LMI as it gets people into properties that otherwise may not. My beef is with the "theft" by an insurer that cost my client upwards of $6000 and all they did was substitute security
    Did a loan for them in Jan 2012 being 95% + capped LMI and in March this year they sold that property and purchased another property with simultaneous settlement. The original loan was a fixed 2 year so we substituted the security on this loan and did a new loan to cover the difference in sale and purchase prices with overall LVR remaining at 95% + capped LMI
    Genworth required a new policy with LMI premium of $12983 capitalised to the new loan HOWEVER the old policy was cancelled and no sign of premium refund or Premium Credit on the new LMI policy. NOW THAT'S GOUGING
    Answer from Genworth was you cannot use existing policy as the security has changed. The overall LVR hasn't so risk has not increased. Oh well, that's LMI
  • Garry | 09 Apr 2013, 04:45 PM Agree 0
    My question has always been that if it hypothetically costs $1,200 annually to insure a $350K house against being destroyed by fire or some other element the why does it cost $11-12K to insure what is effectively the same dollar amount? In actual fact in a case like this the end amount the insurers would need to outlay would never be $350K. They would only need to outlay the difference between the sale cost and unrealised debt to the bank and in the worst case it may only be 5-10% of the original loan amount.
    David C is absolutely correct with his assessment regarding values. The risk gets lower each year yet the the clients dont see any annual rebates back from the insurer. Its really time this crap was stopped. The govt needs to grow a spine and stand up to these insurers and the banks. The lenders are playing a game and are setting the rules so only they can win. We, the public / customer are allowing this crap to continue by being silent. The banks and insurers need to be reminded they are simply a retailer with a commodity (being money) that needs to be sold on. If we stay silent then the general consensus will remain that its OK to screw the client. Its up to us all.........actually do something about it.
  • Shane in QLD | 12 Apr 2013, 08:05 AM Agree 0
    Just another disastrous privatisation of a government organisation which shifted the purpose from assistance to home buyers, to profit and greed.
Post a reply