ASIC reports on Insurance Selling

The Australian Securities and Investments Commission - which has been notable for regulatory incapacity regarding the finance sector - has released two reports on problems relating to the marketing of life insurance. It concludes

ASIC’s review of direct life insurance sales has found that sales practices and product design are leading to poor consumer outcomes.

ASIC Chair James Shipton states

 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's Report 587  reveals that:

 Consumers are cancelling their policies in very high numbers:

• one in five of all policies taken out were cancelled in the cooling off period 

• one in four of all policies that remained in force beyond the cooling off period were cancelled within 12 months 

• three in five 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sold direct compares poorly with other channels when it comes to claims: 15% of claims are declined, with 27% of claims withdrawn. 

 Report 588  found consumers struggle with the direct life insurance sales experience and the complexity of the products, and consumer understanding of key features is often poor. ASIC  identified a failure by all surveyed firms to provide adequate information about important aspects of the cover, including key exclusions and future premium increases. Four firms were also found to engage in pressure selling techniques, including refusing to send out paperwork unless a consumer committed to buy.

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