Consumer advocates are calling for a ban on life insurance cold calling, after ASIC today revealed major rip offs and startlingly high claims rejections.
ASIC reported today that insurers are cold-calling and pressuring people to take out unsuitable life insurance. People are then cancelling in droves – with one in five cancelling during the cooling off period and almost half who keep the insurance no longer having it after three years.
“Direct life insurance has become a lazy and exploitative cash cow for the insurance industry” said Consumer Action Law Centre CEO Gerard Brody. “People are being pressured into buying life insurance that they never wanted and that doesn’t suit them. It’s unethical, it’s wrong and it’s gone on for too long”
“Life insurance is supposed to provide long-term security if life takes a turn for the worse, but direct life insurance doesn’t last even a few years for most people. Many people clearly never wanted it in the first place or it’s not affordable.”
“The figures quoted by ASIC in its report are shocking,” said Ma’ata Solofoni, acting Principal Solicitor of the Financial Rights Legal Centre. “One in six claims are rejected, almost a third are withdrawn, a mere 16 cents in the dollar is paid out on accidental death cover. This should be a huge wake-up call for the community, life insurers and government. The time to clean up life insurance is now.”
“We strongly support ASIC’s plan to restrict life insurers from cold-call selling. Some have realised their errors and stopped it, but the worst offenders are continuing. It is clear that this has to end,” Brody said. “And today’s revelations are yet another reason we need an across-the-board ban on all forms of unsolicited selling.”
People who don’t cancel the insurance face a higher risk of their claim being declined than people who have their life insurance through their superannuation. Of all the claims people have made on direct life insurance, 27 per cent are withdrawn and only 58 per cent are accepted.
“The Government must legislate the Product Intervention Power they have promised so ASIC has the power to knock near-worthless products on the head before they cause this much wreckage,” Brody said.
“Life Insurers too need to immediately act to strengthen their Life Insurance Code with more rigorous standards to address poor sales culture and prevent further harm to Australians.”
- REP 587 The sale of direct life insurance https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-587-the-sale-of-direct-life-insurance/
- REP 588 Consumers’ experiences with the sale of direct life insurance https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-588-consumers-experiences-with-the-sale-of-direct-life-insurance/