ASIC and Royal Commission exposes direct life insurance deficiencies
The release of the ASIC Direct Life Insurance report and recent hearings at the Royal Commission have highlighted poor telephone sales practices and product design in the direct life insurance market which have led to poor consumer outcomes.
Over 2017/18 ASIC examined the direct life insurance sector, where policies are sold directly to the public by insurers or their sales partners, by outbound telemarketing, inbound phone calls from consumers, online or face to face (e.g. through bank branches).
ASIC reviewed distributors of direct life insurance policies such as Auto & General Services (Budget Direct Life insurance), Greenstone Financial Services (Real Life Insurance and Guardian Life Insurance) and Select (Let’s Insure) as well as six life insurance companies with a direct to the public arm (ClearView, NobleOak Life, OnePath, Suncorp, TAL and CommInsure).
The results of the ASIC report were damning. It found that consumers were cancelling their direct life insurance policies in very high numbers with:
- One in five policies being cancelled in the cooling off period
- One in four of the policies remaining in force beyond the cooling off period being cancelled within 12 months
- Three in five of all policies being cancelled within three years
ASIC stated that the high cancellation rates within the cooling off period “may indicate that consumers immediately realized they had made a bad decision or had been pressured into buying a policy they did not need”.
ASIC also found that direct life insurance policies sold over the phone were more likely to be rejected when a claim was made, with a 79% acceptance rate over 2014-17 compared to 93% for the industry overall. When the high rate of 27% withdrawn claims is taken into account, the acceptance ratio falls lower to 58%.
ASIC noted that “no medicals” guaranteed acceptance policies or policies with pre-existing condition exclusions, have a lower likelihood of consumers being able to claim due to the substantial limitations applied to these policies.
ASIC Chairman James Shipton said “Life insurance is a long-term product but cancellation rates and poor claim outcomes show that people are being sold products they don’t want, can’t afford, or don’t perform as they expected.”
The Royal Commission focused on the aggressive phone selling practices of another direct insurer, Freedom Insurance. It was found that the accidental death policies sold by this company using high pressure sales tactics had a lengthy list of exclusions and low levels of claims acceptance at 26%, with 36% of claims denied and 38% withdrawn. Accidental deaths account for a very small percentage of overall deaths.
The Royal Commission also highlighted that direct life insurance policies sold to the public by telephone sales were more expensive and offered inferior cover compared to retail policies available through other channels. Insurance Watch has previously drawn attention to the fact that direct life insurance policies are not “cheap” despite what the TV advertising would like you to believe.
As a result of their investigations into direct life insurance both ASIC and the Royal Commission have questioned whether outbound telephone sales calls should be banned and the sale of accidental death cover restricted. They also have called on direct insurers to examine their sales processes.
Please note: The “direct” to the public policies mentioned above should not be confused with the retail policies from the same insurers compared on the Insurance Watch website – these policies can only be purchased through licensed life insurance brokers and are fully underwritten at the time of application.