ASIC has published the results of its review of direct life insurance to explore whether, and how, the way direct life insurance products are designed and sold contributes to poor consumer outcomes.

REP 587 The sale of direct life insurance summarises the findings and recommendations from ASIC’s review of the sale of direct life insurance products in Australia, including term life, accidental death, trauma, total and permanent disability (TPD) and income protection insurance.

The review covered 11 firms, including six insurers selling directly to consumers and three distributors selling on behalf of two insurers.

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.

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

More than 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.

As a result, ASIC says it intends to restrict outbound sales of life and funeral insurance, in order to protect consumers.

ASIC also says that unless firms can demonstrate that accidental death insurance can meet consumer needs, it expects firms to stop selling this product.

While the review did not specifically look at consumer credit insurance (CCI) or funeral insurance, the findings and recommendations are also applicable to the direct sale of these products.

ASIC’s review reports 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 was 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sold direct compares poorly with other channels when it comes to claims: 15% of claims are declined, with 27% of claims withdrawn.

ASIC has also released Report 588, consumer research conducted as part of this review, which 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 says sales of accidental death insurance were particularly problematic, including where consumers were ‘downgraded’ to accidental death insurance after being rejected for comprehensive life insurance. Accidental death insurance only covers death due to some types of accidents, and offers little value to consumers, with a claims ratio of only 16.1% over the 2015-17 financial years.