Understanding the Consumers Price Index (CPI) and insurance

The consumers price index (CPI) measures the changing price of goods and services purchased by New Zealand households. The CPI is calculated by Statistics NZ Tatauranga Aotearoa (Stats NZ) and published quarterly. The change in the CPI is a measure of inflation i.e. the rate at which the cost of goods and services has increased.

Some AIA insurance policies offer the choice to link the amount of cover to the CPI. This is usually referred to as ‘CPI linked’ or ‘Inflation’ cover.

If you have selected your insurance benefits to be CPI linked, on each policy anniversary date, the amount of cover under the relevant benefit will increase to account for the change in the CPI. This helps the value of your insurance keep up with increases in the cost of living.

Some insurance benefits have a maximum amount of cover. Once the maximum amount of cover has been reached, no further CPI increases will apply.   

If the change in the CPI is negative in any year, you will keep your existing level of cover i.e. your cover will not decrease. 

CPI increases are applied annually on each policy anniversary date. We will let you know of upcoming increases at least four weeks before your policy anniversary date in your annual policy renewal letter. 

You can advise AIA if you do not want your amount of cover to increase for a particular year. For more information about managing the impact of CPI please see below. 

Yes, your premiums will increase to accommodate the increase in your cover amount due to a change in the CPI.  

You can advise AIA if you do not want your amount of cover to increase for a particular year. For more information about managing the impact of CPI please see below. 

AIA uses the annual change in CPI published by Stats NZ for the year to 30 September for all CPI linked policies. However, your policy anniversary date will determine which year’s rate is applied to your cover due to the following factors:

1. The annual CPI is calculated for the year to 30 September but is not typically published until mid October; and
2. We’re committed to giving you at least four weeks’ advance notice of any premium, policy fee and cover increases.

The examples below show how this works:

For AIA Living and Sovereign policies: 

For policies with anniversary dates between 1 January and 19 January, we apply the annual CPI rate as of 30 September for the year prior to the previous calendar year. 

For policies with an anniversary date from 20 January onwards, we apply the latest annual CPI as of 30 September for the previous calendar year. 

Examples:

1. A policy with an anniversary date of 10 January
   For 2023 CPI linked adjustments, we sent policy anniversary letters in November 2022 and applied the CPI as of September 2021. Unless opted out of the CPI linked adjustment, the increased cover was effective from 10 January 2023.

2. A policy with an anniversary date of 23 January
   For 2023 CPI linked adjustments, we sent policy anniversary letters in December 2022 and applied the CPI as of September 2022. Unless opted out of the CPI linked adjustment, the increased cover was effective from 23 January 2023. 

For AIA policies issued before 5 August 2019 and AIA Real Policies:

For policies with an anniversary date from 1 January onwards we apply the latest annual CPI as of 30 September for the previous calendar year. 

Example:

1. A policy with an anniversary date of 23 January
   For 2023 CPI linked adjustments, we sent policy anniversary letters in December 2022 and applied the CPI for September 2022. Unless opted out of the CPI-linked adjustment, the increased cover was effective from 23 January 2023. 

If you don’t want the CPI increase to be applied in a particular year, other options may be available and are outlined in your anniversary letter. You can discuss these with your adviser or contact AIA directly. 

For AIA Living and Sovereign policies:

If you hold AIA Living or Sovereign policies with CPI linked or Inflation cover, we may offer you additional options to manage your cover levels and premiums. For example, your anniversary letter may include the following options:  

• Increase your cover in line with the change in the CPI as set out in in your anniversary letter. If you are happy with this increase, you don’t need to do anything.

• Increase your cover by a different rate than the change in the CPI (and what that rate is). 

• Decline the CPI increase and keep your current level of cover.  

If you don’t let us know your preferred option, we will automatically increase your cover in line with the change in the CPI as set out in your anniversary letter.  

If you decline the CPI increase or select a different level of indexation than the CPI rate, your premium will be adjusted to reflect the level of cover that you select.

For AIA policies issued before 5 August 2019 and AIA Real Policies: 

Note if you hold an AIA policy issued before 5 August 2019 or an AIA Real policy unfortunately we cannot offer you the option to increase your cover by a lower rate than the CPI rate. If you want to decline the CPI increase and keep your current cover level, please contact your adviser or AIA directly. 

Sometimes the period between anniversaries may be shorter or longer than 12 months. This usually happens when you make changes to your policy anniversary date. In these cases, the CPI increase will be pro-rated to reflect the time that has passed between policy anniversaries.

Grouping policies together:  

Some customers have the option to group their policies together (called a correspondence group), which means the policy anniversary date for some of these policies may change. This is because all policies in the correspondence group will adopt the same anniversary date as the original policy in the group. For the policy that moved into, or out of a correspondence group, it may be shorter or longer than 12 months since the last anniversary date for this policy. 

Examples: 

1. In October, a policy with an anniversary date of 20 August moves into a correspondence group with an anniversary of 20 April. All policies in the correspondence group now share the 20 April anniversary date. The change in CPI for the policy that moved will be pro-rated to reflect that only 8 months have passed between anniversaries.

2. In October, a policy with an anniversary date of 20 August moves into a correspondence group with an anniversary of 20 September. All policies in the correspondence group now share the 20 September anniversary date. The change in CPI for the policy that moved will be pro-rated to reflect that 13 months have passed between anniversaries.

3. A policy moves out of a correspondence group with an anniversary date of 20 November. The policy that moves out of the correspondence group reverts back to its original anniversary date of 20 March. The change in CPI will be pro-rated to reflect that 4 months have passed between anniversaries.