“Downgrading” life/risk products under fire at RC

The practice of offering “downgraded” life insurance products has come under the spotlight at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, with Clearview facing questions over its practice of offering accidental death cover to people rejected for general life insurance.

Senior Counsel assisting the Commission, Rowena Orr QC, said that when people were declined life insurance cover, salespeople at Clearview were instructed to try to sell them accidental death cover, labelling it “a cheaper, inferior product than the one they applied for”.

In the witness stand, Clearview’s chief actuary and risk officer, Gregory Martin, disagreed with this characterisation. He also said that the intention in selling the lesser product was to do a service to the potential client.

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The Australian Securities and Investments Commission (ASIC) had begged to differ on the selling of the downgraded product in the past. Orr raised the fact that the regulator had highlighted selling such downgraded product as an issue, finding that they offer “very limited benefit” to those rejected for other life insurance.

Unless insurers could demonstrate the benefit of their product to consumers, ASIC would expect insurers to stop selling accidental life products.

After much questioning by Orr, Martin admitted to the Commission that Clearview had not yet decided on whether to still sell accidental cover in light of this move by ASIC.

“We have to review it and work out what ASIC means by that,” he said.

Orr also played an excerpt of a sales call for downgrading a woman rejected from general life insurance to accidental death cover, in which the salesperson pushed how much money her family would receive in the event of her accidental death.

Considering that Orr had previously detailed how infrequently such cover is ultimately paid out, it would seem that such sales techniques may also be a focus of the Commission in this round of hearings.

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