Direct life insurance products have taken a hit from the Australian Securities and Investments Commission (ASIC) which has issued a report on the sector condemning it for both poor sales practices and product design which, in turn, have led to poor consumer outcomes.
The ASIC analysis accompanying the Report 587 pointed to consumers cancelling their policies in very high numbers and then detailed the following:
- 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poorly with other channels when it comes to claims: 15 per cent of claims are declined, with 27 per cent of claims withdrawn
The report has been issued barely a fortnight ahead of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry beginning hearings directly examining the insurance sector.
The report also points to the fact that direct life insurance sales are meant to be subject to the same rules as the Life Insurance Framework (LIF).
Commenting on the report, ASIC chairman, James Shipton said life insurance was a long-term product, but cancellation rates and poor claim outcomes showed that people were being sold products they didn’t want and couldn’t afford, and which did not perform as expected.
The regulator noted that ASIC had also released Report 588, consumer research conducted as part of the Report 587 review, which found consumers struggle with the direct life insurance sales experience and the complexity of the products, and consumer understanding of key features is often poor.
It said 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,” ASIC said.
“Aggressive selling practices and products that don’t pay out when consumers expect undermine trust in the industry,” Shipton 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.”
