Late last week, ASIC released Report 587 on the sale of direct life insurance, revealing that its has found that sales practices and product design are leading to poor consumer outcomes. Direct life insurance products are sold within a general advice or no advice model.
Throughout 2017-18 ASIC has conducted a multi-stage review of the sale of direct life insurance, including term life, accidental death, trauma, total and permanent disability and income protection insurance. The release of Report 587 follows action taken by ASIC earlier this year against ClearView Life Assurance Limited that resulted in customer refunds (see our previous blog entry).
ASIC’s review found that consumers are cancelling their life insurance policies sold direct in very high numbers, with:
- one in five policies cancelled in the cooling-off period;
- one if four policies (that remained in force beyond the cooling off period) cancelled within 12 months; and
- three in five policies cancelled within three years.
ASIC also found that claims under life insurance policies sold direct compares poorly with other sales channels, with 15% of claims declined and 27% of claims withdrawn. Sales of accidental death insurance were found to be particularly problematic, including where consumers were ‘downgraded’ to accidental death insurance after being rejected for comprehensive life insurance.
In addition to Report 587, ASIC has also released Report 588 on consumers’ experiences with the sale of direct life insurance. ASIC identified a failure by all firms reviewed to provide adequate information about important aspects of cover, including key exclusions and premium increases. Pressure selling techniques were also identified in some instances, as well as bundling add-on cover without checking if the consumer wanted it. More than half the firms reviewed were found to have incentive schemes which encourage sales staff prioritising closing a sale ahead of the needs of the customer. Other findings from the ASIC review included that training and scripts did not always set clear and professional standards for sales conduct and quality assurance frameworks were not always effectively designed to detect and address poor sales conduct.
As a result of its review, ASIC has advised that it has several investigations under way and will use its regulatory toolkit, including enforcement action and policy reform, to address failures in this market. ASIC has also announced that it intends to restrict outbound sales of life and funeral insurance and that it expects firms to stop selling accidental death insurance unless they can demonstrate that it can meet consumer needs.
ASIC also expects the industry to respond to its concerns and raise standards through a revised Code of Practice, but noted that firms selling direct life insurance should not wait for an updated Code before reviewing the findings and recommendations in Report 587 and implementing changes as required to improve consumer outcomes. While consumer credit insurance and funeral insurance were not captured as part of the review, ASIC expects firms selling those products to also act on the findings and recommendations.
Further information can be found here.