Life insurance policies are complex products which, even with the help of a financial planner and a well-written product disclosure statement (PDS), are rarely completely and thoroughly understood by an average consumer.
That very fact alone should have given major insurers pause before they embarked on their direct sales strategies wherein “sales agents” operating out of in-house call centres were tasked with selling life/risk products to consumers over the phone.
To be clear, and as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was told, those calls did not involve the “sales agents” making themselves fully aware of the circumstances of the consumer, their need for an insurance product or even their capacity to maintain the premiums. The sales agents were simply in the business of “tele-sales”.
It is a measure of those direct life/risk sales businesses, now discontinued by ClearView, that a culture existed which gave rise to tactics such as “random incentive days” within which it was promised it would “rain gift cards” as the sales/agents chased their premium targets.
Few insurance industry veterans would be comfortable with such language and tactics because it is the language of tele-marketing/sales and not the traditional parlance of the insurance industry, even in the days of the old door-to-door “lifey”. It is language symptomatic of companies which allowed expedience to get in the way of ethics.
Elsewhere in this edition of Money Management, the chairman of life/risk focused financial planning dealer group, Synchron, Michael Harrison, has suggested that the evidence provided to the Royal Commission has proved that “direct life insurance is barely worth the paper it’s written on, that direct insurers will do almost anything to make a sale and that they will do almost nothing to honour their policies at claims time”.
Many financial planners would agree with Harrison, not least because most life/risk policies sold via direct channels are underwritten at time of claim rather than at time of sale. Notwithstanding this, it is wrong to suggest that all life insurance sold via direct channels is utterly valueless. Properly sold to appropriately informed consumers, policies sold via direct channels can have a value.
For the major insurers there is an undeniable commercial attraction in the direct life/risk channel but they must now make an assessment of whether that attraction is subsumed by the regulatory and reputational risks. ClearView has clearly made its decision. Will others act similarly?
Assuming the Royal Commissioner, Kenneth Hayne, does not take an entirely negative view of direct life/risk sales it is now up to the major insurers to thoroughly review their businesses to ensure that the misconduct picked up by the Australian Securities and Investments Commission (ASIC) and laid bare during the Royal Commission hearings is totally eliminated and whether, consequently, their commercial models will still work.
There is an old saying that life insurance is “sold and not bought”. The question insurers need to ask themselves is whether selling over the phone will still look like a viable commercial model in the wake of the Royal Commission.