Life insurance cancellation rates high with poor claims outcomes

ASIC’s review of direct life insurance sales has found that sales practices and product design are leading to poor consumer outcomes.


ASIC's Report 587 reveals 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 were 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sold direct compares poorly with other channels when it comes to claims: 15% of claims are declined, with 27% of claims withdrawn.


'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.


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 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 buy.


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.


Mr Shipton said, 'Aggressive selling practices and products that don’t pay out when consumers expect undermine trust in the industry. However, selling direct life insurance can be done well and we have seen this where firms have moved away from riskier business models, such as outbound sales and reliance on products with broad exclusions.'


'ASIC is also announcing today that we intend to restrict outbound sales of life and funeral insurance, in order to protect consumers,' said Mr Shipton.


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 accidents, and offers little value to consumers, with a claims ratio of only 16.1% over the 2015-17 financial years.


ASIC also identified certain business practices, including scripts, training, quality assurance and incentives contribute to poor consumer outcomes.


Data published by the Australian Prudential Regulation Authority (APRA) and ASIC in May 2018 found that 93% of finalised claims across all channels (advised, group and direct) were paid, while for the direct channel this was only 84%.

ASIC's review

ASIC undertook a 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.


The review covered 11 firms, including six insurers selling directly to consumers and three distributors selling on behalf of two insurers. They are CommInsure, ClearView Life Assurance, NobleOak Life, Suncorp Life & Superannuation, TAL Life, and OnePath Life (part of ANZ Banking Group), St Andrew's Life Insurance and its distributor Select AFSL, Hannover Life Re and its distributors Greenstone Financial Services and Auto & General Services.


ASIC has taken action against ClearView for poor sales conduct of direct life insurance (18-029MR). Following ASIC’s review, ClearView refunded over $1.5 million to 16,000 customers after pressuring them to buy life insurance over the phone.


ASIC's review included term life, trauma, total and permanent disablement (TPD), income protection, and accidental death insurance. While it 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 MoneySmart website has information for consumers about the different types of life insurance and what to check before buying a policy.




31 August 2018.