SYDNEY (Reuters) - An Australian regulator said it wants to ban life insurers from outbound telephone sales that pressure customers into buying unwanted policies, giving a peek at practices to be scrutinised next month at a powerful inquiry into industry conduct.
The Australian Securities and Investments Commission (ASIC) said it also wants to ban the sale of accidental death insurance entirely, saying policyholder families get a payout of just one-sixth the amount the person has paid in premiums.
The ban, suggested by ASIC in a report on Thursday, offers a preview of the kinds of issues Australia’s A$46 billion ($34 billion) a year insurance industry will face when a Royal Commission inquiry into the finance sector resumes hearings on Sept. 10 with a focus on insurance.
The inquiry has so far heard allegations in the finance sector of widespread bribe-taking, charging for services never given and board-level misconduct, prompting criticism of regulators including ASIC.
“We intend to restrict outbound sales calls for life and funeral insurance. We are considering what regulatory tools we will use to implement this reform,” ASIC said in the report.
It’s unclear what power ASIC has to unilaterally bring in a ban. ASIC is the overall corporate regulator in the country, and the Australian Prudential Regulation Authority (APRA) is the regulator for the finance industry, including insurance.
APRA was not immediately available for comment.
ASIC said it studied more than 540 customer phone calls from eight life insurers representing 80 percent of the market. It said it also studied the outcomes of those calls, which were made during 2010 through 2017.
A fifth of people who agreed to buy life insurance in those calls cancelled plans within weeks, a quarter of the remainder quit after a year, and almost half of those left after that cancelled their policy within three years, ASIC said.
The high cancellation rate suggested people were being pressured into buying products they did not want or need without enough information, the regulator said.
“People are being sold products they don’t want, can’t afford, or don’t perform as they expected,” said ASIC Chairman James Shipton in a statement published with the report.
“Aggressive selling practices and products that don’t pay out when consumers expect undermine trust in the industry,” Shipton said.
The regulator said it would keep monitoring the data and “if outcomes do not improve, we will consider what further regulatory interventions will be necessary, using the full range of our powers.”
It said it was “particularly concerned” about the value of accidental death insurance, given policyholders would generate payouts of 16 cents for every dollar spent in premiums.
“Unless firms can demonstrate that accidental death insurance can provide a benefit to consumers, we expect them to stop selling this product,” ASIC said. “If they do not, we will consider the need for more formal action in the future.”
The Financial Services Council, an industry-funded body which writes insurers’ code of conduct, said it already banned “pressure selling” and added that it was working with ASIC, consumer groups and others to update the code.
“The FSC is disappointed the report has uncovered continuing practices among some life insurers and/or distributors which have led to too many consumers buying products they later cancelled, or have not understood properly what cover they had taken out,” the council said.
($1 = 1.3717 Australian dollars)
Reporting by Byron Kaye; Editing by Christopher Cushing and Muralikumar Anantharaman