An ASIC review has found high cancellation rates and poor claims outcomes for life insurance sold direct to consumers.
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compared to life insurance sold through other channels: 15 per cent of claims are declined; 27 per cent of claims are withdrawn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