The Australian Securities and Investments Commission (ASIC) has criticised the funeral insurance market, saying funeral insurance premiums continue to rise steeply for the over-50s, resulting in many people cancelling their policy in the first few years, thereby losing the benefit of premiums already paid.
ASIC’s ‘Report 454 Funeral Insurance: A snapshot’ examines the common features of policies and provides data about sales, claims and policy cancellations to better understand the benefits and risks associated with funeral insurance products.
According to ASIC Deputy Chair Peter Kell, many consumers are still being sold funeral insurance policies that expose them to risks.
“The high rate of cancellations points to problems not only with cost, but the design, marketing and sales of funeral insurance. It appears that many consumers do not understand important features of the product until after they have signed up,” Kell said.
In its findings, ASIC found that the average premium for 80-84 year olds was four times the average cost for those aged 50-54 years, because most consumers held ‘stepped’ premiums which increase with age. The report also found that even ‘fixed’ premiums often increased (along with the benefit payable) under ‘inflation protection’ measures, which was usually 5 per cent annually.
ASIC Report 454 found that in 2014, the number of policies cancelled was 80 per cent of the number of policies sold, with about 55 per cent of cancellations occurring during the first year of the policy. The report also found that 65 per cent of cancellations were initiated by consumers, while 35 per cent were made by insurers for non-payment of premiums. According to ASIC, the main reason for cancelling was cost.
“ASIC has made a number of recommendations for insurers to assist consumers better understand the product they are purchasing,” Kell said. “We also urge buyers of funeral insurance to better inform themselves about the product and ensure they have a clear understanding of the premiums to be paid long-term.”
Some of the report’s key recommendations for insurers are to:
- Provide an upfront estimate for consumers of the total cost of the policy;
- Clearly and prominently disclose where there is the possibility that the total premiums payable under a policy could exceed the benefit amount; and
- Do more to ensure consumers understand key features of the policy when it’s sold to them, especially when selling to vulnerable groups like indigenous consumers.
TAL Group chief executive and managing director, Brett Clark welcomed ASIC’s findings and supported changes in the marketing and design of funeral insurance products.
“Our customer research shows funeral insurance is a highly valued product by our customers,” Clark said. “Many customers are not in a financial position to pay for a funeral up-front and their families would struggle to meet the costs of a funeral if it were left to them.”
Clark supported ASIC’s recommendations, adding that TAL had already addressed many of the areas raised by ASIC in its report, such as introducing a level premium only product and the removal of stepped premium policies from its product offering back in 2013.
“Our customers have really welcomed these changes. Our customer research has been very positive and we have seen our policy cancellation rates reduce as a result,” Clark said.
