The corporate watchdog will ban the sale of accidental death and funeral insurance following two scathing reports on the practices of some insurers.
The Australian Securities and Investments Commission (ASIC) said it would not hesitate to use further regulatory pressure to ensure life insurance firms delivered better consumer outcomes.
ASIC chair James Shipton hit out at insurers saying some were using aggressive selling techniques and offering products that do not pay out when consumers lodged claims.
“Life insurance is a long-term product but cancellation rates and poor claim outcomes show that people are being sold products they don’t want, can’t afford, or don’t perform as they expected,” he said.
“However, selling direct life insurance can be done well and we have seen this where firms have moved away from riskier business models, such as outbound sales and reliance on products with broad exclusions.
“ASIC will use all of its regulatory tools to address failures in this market – including through enforcement action and policy reform. We have several investigations under way.
“ASIC is also announcing today that we intend to restrict outbound sales of life and funeral insurance, in order to protect consumers,” Mr Shipton said.
The ASIC reviews covered 11 firms, including six insurers selling directly to consumers and three distributors selling on behalf of two insurers. They were CommInsure, ClearView Life Assurance, NobleOak Life, Suncorp Life & Superannuation, TAL Life, and OnePath Life (part of ANZ Banking Group but being acquired by Zurich), St Andrew’s Life Insurance and its distributor Select AFSL, Hannover Life Re and its distributors Greenstone Financial Services and Auto & General Services, according to a report in the Australian Financial Review.
Mr Shipton said that ASIC’s findings on accidental death insurance were particularly problematic, including customers who had been sold that cover after being rejected for life insurance.
“Unless firms can demonstrate that accidental death insurance can meet consumer needs, ASIC expects firms to stop selling this product,” he said.
“Accidental death insurance only covers death due to some types of accidents, and offers little value to consumers, with a claims ratio of only 16.1 per cent over the 2015-17 financial years,” ASIC said.
In one report, ASIC found that a high rate of life insurance policy cancellations were recorded during cooling-off periods. Consumers exited about 20 per cent of policies, 15 per cent of claims were declined and 27 per cent withdrawn.
An ASIC investigation into 540 recorded sales calls revealed pressure tactics and incentives were often used by salespeople as consumers were struggling to understand the detail of the policies being offered.
Four firms were also found to engage in pressure selling techniques, including refusing to send out paperwork unless a consumer committed to buy, ASIC said.
More than 50 per cent of insurers had incentives and bonuses for staff to persuade policyholders to sign on.
ASIC found a number of factors contributed to the poor conduct it observed:
- products not designed with good consumer outcomes in mind
- training not focussing on risks to consumers
- scripts unable to help consumers make good decisions
- incentives encouraging agents to put sales ahead of consumers
- quality assurance failing to spot the issues or fix problems.
Do you have life insurance? If so, did you feel the insurer’s representative put pressure on you to buy ? Have you ever felt unfairly treated by an insurer who refused to pay out on a claim?