PEOPLE SOLD LIFE INSURANCE THEY DON'T WANT OR CAN'T AFFORD
WHAT IS DIRECT LIFE INSURANCE?
* Life insurance sold directly to consumers, not by advisers or through superannuation
* Sold through "cold calls", online or through bank branches
* Types of direct life insurance: life or death cover; trauma cover; total and permanent disability; income protection; accidental death; consumer credit; funeral insurance
* Makes up less than 10 per cent of all life insurance in Australia, but ASIC says it has been a growing part of the market
WHAT PROBLEMS DID ASIC FIND?
* People are cancelling their policies in very high numbers or letting policies lapse:
* One in five of all policies taken out are cancelled in cooling-off period, indicating consumers may immediately realise they made a bad decision or had been pressured into buying a policy they didn't need;
* One in four that remain after cooling-off period are cancelled within 12 months;
* Three in five are cancelled within three years,
* Claims outcomes are also poor, compared to life insurance sold through other channels: 15 per cent of claims are declined; 27 per cent of claims are withdrawn
* Pressure selling and aggressive sales practices
* More than half of firms have incentive schemes which encourage sales staff to prioritise closing a sale ahead of customer's needs, including bonus payments heavily focused on value or volume of sales
* Sales of accidental death insurance particularly problematic, including consumers being "downgraded" to those policies after being rejected for comprehensive life insurance
* Only covers death due to some types of accidents;
* ASIC says it offers little value to consumers;
* For every $1 of premium paid by consumers, only 16 cents paid in claims by insurers.
WHAT IS ASIC DOING?
* Restricting outbound sales calls for life and funeral insurance
* In the meantime it expects the small number of firms who still do cold calls to move away from the practice
* Expects firms to stop selling accidental death insurance unless they demonstrate it can meet consumer needs
* Insurer Clearview is refunding $1.5 million to 16,000 people and has stopped selling life insurance directly to consumers
* ASIC is reviewing what further remediation is required by other firms
* Reforms that began in January 2018 reduce conflicted remuneration in life insurance, including for direct sales.
Source: Australian Securities and Investments Commission