Life insurers have been slammed for high-pressure sales tactics, including “cold calls”, where vulnerable consumers are pushed into products they dob not want or need, as the corporate regulator turns up the heat on the embattled sector.
A report by the Australian Securities & Investments Commission (ASIC) has been released, as insurers prepare to be grilled about questionable strategies for signing up new customers when then financial services royal commission resumes on September 10.
ASIC’s review of direct life insurance sales shows that selling practices lead to “poor consumer outcomes” where customers struggle with complex products and have a poor understanding of key exclusions that erode the perceived value of premiums.
The review probed 11 firms selling directly to consumers, including CommInsure, ClearView, NobleOak, Suncorp, TAL Life, OnePath Life and St Andrews Life.
The regulator has ordered insurers to stop selling accidental death insurance unless they can demonstrate a benefit to consumers.
“If they do not, we will consider the need for more formal action in the future,” the report said.
Phone calls reveal ‘aggressive selling practices’
As part of its investigation, ASIC listened to more than 540 recorded sales calls where all firms failed to provide adequate information.
Four firms were found to have engaged in scripted high-pressure selling tactics and refused to send out paperwork unless a potential customer committed to buy a policy on the spot.
ASIC also found that clients were increasingly wary about the value of life insurance products, with one-in-five polices cancelled in the cooling off period, one-in-four policies past the cooling off period cancelled within 12 months and three-in-five policies cancelled within three years.
Poorly briefed consumers were often unaware of exclusions, meaning many also received poor outcomes from life cover, with 15 per cent of claims declined and 27 per cent withdrawn.
The report found that, while sales staff were told to avoid high-pressure selling, “they were also trained in objection training and closing techniques” to convince potential customers to sign up.
“We noted that scripts and training were balanced in favour of compliance and business risk rather than considering customer outcomes,” the report concluded.
ASIC chairman James Shipton has warned life insurers to clean up their business or face tougher regulation, while confirming that several investigations stemming from the review were underway.
“Aggressive selling practices and products that don’t pay out when consumers expect undermine trust in the industry,” Mr Shipton said.
“ASIC will use all its regulatory tools to address failures in this market, including enforcement action and policy reform.”
In February, ClearView refunded $1.5 million to 16,000 customers after ASIC took action for poor sales conduct.
Insurers under pressure as they face commission hearing
Life insurers called to appear before the royal commission include AMP, ClearView, CommInsure, Freedom Insurance, REST and TAL.
Freedom Insurance shares have fallen to a record low after the company was ordered to front Commissioner Kenneth Hayne.
Announcing a 6 per cent fall in annual profit yesterday, Freedom chief executive Keith Cohen predicted that “life insurance will have a challenging time in the short term”.
ASIC’s review into life insurance comes amid criticism at the royal commission that the regulator has failed to detect unlawful and unethical behaviour across the financial services sector.
ASIC is continuing to review consumer credit insurance and funeral insurance as part of ongoing inquiries.
Follow Peter Ryan on Twitter @peter_f_ryan.