Cold calls aggressively pressuring people to buy life and funeral insurance they don’t want or can’t afford could soon end.
The corporate regulator plans to restrict the practice and has demanded insurers stop selling accidental death insurance altogether, saying it’s of little value to consumers.
Insurers have already started moving away from telemarketing sales of life insurance but the Australian Securities and Investments Commission (ASIC) wants the small number of firms that still make cold calls to stop.
Its review of direct life insurance, which is sold directly to people rather than by advisers or through superannuation, found consumers are cancelling their policies in very high numbers.
“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 said on Thursday.
ASIC listened to more than 540 recorded sales calls, finding all 11 firms failed to provide adequate information about the insurance cover including key exclusions and future premium increases.
Four firms engaged in pressure selling and more than half used incentive schemes, including bonus payments heavily focused on the number or value of sales, that encouraged staff to prioritise closing a sale ahead of customers’ needs.
ASIC’s review found one-in-five policies were cancelled in the cooling-off period, with another one-in-four ditched within a year.
Three-in-five policies were cancelled within three years.
When policyholders tried to make a claim, 15 per cent were rejected and another 27 per cent were withdrawn.
Consumers also struggled to understand life insurance products due to their complexity.
Mr Shipton said ASIC planned to restrict outbound phone sales of direct life insurance as well as funeral insurance.
The regulator has also told insurers to stop selling accidental death insurance after finding it offered little benefit to consumers, with only 16 cents paid in claims by insurers for every $1 of premium paid.
ASIC said it was considering whether to take enforcement action against individual firms and whether further remediation was required by other insurers.
ClearView is refunding $1.5 million to 16,000 consumers after the regulator found it used unfair and high-pressure practices to sell life insurance policies by phone.
Industry body the Financial Services Council noted the ASIC report found its life insurance code of conduct, which explicitly bans pressure selling, had improved outcomes for consumers.
But it was disappointed the report uncovered continuing practices among some life insurers or distributors that had led to too many consumers buying products they later cancelled, or they had not properly understood what cover they took out.
A number of insurers will be grilled next month by the banking royal commission about problems with the sale of life and general insurance products and the handling of claims.