Shefi Ben-Hutta
Editor at Coverager
ASIC

ASIC Reports Poor Outcomes in Direct Life Insurance Sales

According to research conducted by the ASIC (Australian Securities and Investments Commission) that reviewed direct life insurance sales, consumers are cancelling their policies in very high numbers:

 

  • 1 in 5 of all policies taken out were cancelled in the cooling off period
  • 1 in 4 of all policies that remained in force beyond the cooling off period were cancelled within 12 months
  • 3 in 5 of all policies sold were cancelled within three years
  • life insurance sold direct compares poorly with other channels when it comes to claims: 15% of claims are declined, with 27% of claims withdrawn

 

“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.” – ASIC Chair James Shipton.

 

ASIC has also found that 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 listened to more than 540 recorded sales calls and identified a failure by all firms to provide adequate information about important aspects of the cover, including key exclusions and future premium increases.

 

More than half the firms had incentive schemes which encourage sales staff to prioritize closing a sale ahead of the needs of the customer, including bonus payments heavily focused on value or volume of sales.

 

“Aggressive selling practices and products that don’t pay out when consumers expect undermine trust in the industry . 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.” – Mr Shipton.

 

Last, ASIC is also announcing its intention to restrict outbound sales of life and funeral insurance, in order to protect consumers. Sales of accidental death insurance were particularly problematic, including where consumers were ‘downgraded’ to accidental death insurance after being rejected for comprehensive life insurance. Accidental death insurance only covers death due to some types accidents, and offers little value to consumers, with a claims ratio of only 16.1% over the 2015-17 financial years.

 

 

Unless firms can demonstrate that accidental death insurance can meet consumer needs, ASIC expects firms to stop selling this product.

 

 

Access the report here and the infographic here.