ASIC finds ‘failure by all firms’ in direct insurance sales

ASIC’s review of direct life insurance sales found that “sales practices and product design are leading to poor consumer outcomes”, noting that one in every five direct policies were cancelled within the cooling off period, and a further one in four of the remaining policies were then cancelled within 12 months.

Three in every five policies sold are cancelled within three years, the report also said.

ASIC added that direct insurance also “compares poorly” with other channels, with 15 per cent of claims declined and 27 per cent are withdrawn.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,” said ASIC chair James Shipton. 

The regulator also found inappropriate sales techniques were being used to sell direct life insurance policies.

“ASIC 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,” ASIC said.

“Four firms were also found to engage in pressure selling techniques, including refusing to send out paperwork unless a consumer committed to buy.”

However, Mr Shipton said that while “aggressive selling practices” undermine trust in the industry, direct life insurance sales “can be done well” as evidenced by past experience where businesses choose not to use outbound sales or rely on products with broad exclusions.

“ASIC will use all of its regulatory tools to address failures in this market – including through enforcement action and policy reform. We have several investigations underway,” he said.

“ASIC is also announcing today that we intend to restrict outbound sales of life and funeral insurance, in order to protect consumers.”