A review of life insurance sales carried out by the Australian Securities and Investments Commission (ASIC) has found consumers to be the victims of dodgy sales practices and poor product design.
In its report, The Sale of Direct Life Insurance, the Commission found consumers were cancelling their policies in high numbers.
The report found that one in five of all life insurance policies taken out were cancelled in the cooling off period; one in four that remained in force beyond the cooling off period were cancelled within 12 months; and three in five of all policies sold were cancelled within three years.
Chair of ASIC, James Shipton said life insurance sold direct compared poorly with other channels when it came to claims, with 15 per cent of claims declined, and 27 per cent withdrawn.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,” Mr Shipton said.
He said ASIC also released consumer research conducted as part of the review, which found consumers struggled with the direct life insurance sales experience and the complexity of the products — and consumer understanding of key features was often poor.
Mr Shipton said 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.
He said four firms were also found to engage in pressure selling techniques, including refusing to send out paperwork unless a consumer committed to buy.
More than half the firms used incentive schemes as encouragement to 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.
ASIC’s 128-page report can be accessed at this PS News link and its MoneySmart website has information for consumers about the different types of life insurance and what they should check before buying a policy.
