Sales practices and product design are leading to poor consumer outcomes in the direct life insurance segment of the market, according to a review by Australian Securities and Investments Commission (ASIC), which is Australia's integrated corporate, markets, financial services and consumer credit regulator.
ASIC's review reveals that consumers are cancelling their policies in very high numbers:
- one in five of all policies taken out were cancelled in the cooling off period
- one in four of all policies that remained in force beyond the cooling off period were cancelled within 12 months
- three in five of all policies sold were cancelled within three years.
- life insurance sold direct compares poorly with other channels when it comes to claims: 15% of claims are declined, with 27% of claims withdrawn.
“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,” said ASIC Chair James Shipton.
ASIC has released another report which is consumer research conducted as part of the review, which found that consumers struggle with the direct life insurance sales experience and the complexity of the products. Furthermore, consumer understanding of key features is often poor.
ASIC listened to more than 540 recorded sales calls and identified a failure by all firms to provide adequate information about important aspects of the cover, including key exclusions and future premium increases.
Four firms were also found to engage in pressure selling techniques, including refusing to send out paperwork unless a consumer committed to buy.
More than half the firms had incentive schemes which encourage sales staff to prioritise closing a sale ahead of the needs of the customer, including bonus payments heavily focused on value or volume of sales.
Mr Shipton said, “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 underway.”
Restriction on outbound life insurance
ASIC also announced that it intends to restrict telemarketing sales of life and funeral insurance, in order to protect consumers, said Mr Shipton.
Sales of accidental death insurance were particularly problematic, including where consumers were 'downgraded' to accidental death insurance after being rejected for comprehensive life insurance. Accidental death insurance only covers death due to some types accidents, and offers little value to consumers, with a claims ratio of only 16.1% over the 2015-17 financial years.
Unless firms can demonstrate that accidental death insurance can meet consumer needs, ASIC expects firms to stop selling this product.
ASIC's review covered 11 firms, including six insurers selling directly to consumers and three distributors selling on behalf of two insurers. They are CommInsure, ClearView Life Assurance, NobleOak Life, Suncorp Life & Superannuation, TAL Life, and OnePath Life (part of ANZ Banking Group), St Andrew's Life Insurance and its distributor Select AFSL, Hannover Life Re and its distributors Greenstone Financial Services and Auto & General Services.
The review included term life, trauma, total and permanent disablement (TPD), income protection, and accidental death insurance. While it did not specifically look at consumer credit insurance (CCI) or funeral insurance, the findings and recommendations are also applicable to the direct sale of these products.