Taking advantage: The negative impact of funeral insurance in Aboriginal Communities

This opinion piece is by Kaylee Anderson and Mark Holden and it is based on an article – The impact of funeral insurance in Aboriginal and Torres Strait Islander communities’ –  which first appeared in Precedent, the journal of the Australian Lawyers Alliance, issue 160, published in October 2020 (Sydney, Australia, ISSN 1449-7719), pp38–42. It has been reproduced with the kind permission of the authors and the ALA. For more information about the ALA, please go to: www.lawyersalliance.com.au.

Kaylee is an Aboriginal woman from Wiradjuri and Yorta Yorta/Bangarang countries in NSW and Victoria. Kaylee has been based at Consumer Action Law Centre for the past 2.5 years as the Koori Engagement Manager.

Mark is a Dunghutti solicitor for the Financial Rights Legal Centre. Mark has worked widely in the NSW community legal sector for almost ten years including Legal Aid NSW, PIAC and the Environmental Defenders Office NSW.

 

Sorry Business has always been a time of togetherness. Families all come together to share the pain, grief and the hardship of losing a community member. We also make sure to give those who have passed a good send-off back to the Dreamtime. It’s the way we have always lived- sharing carries us through life and it’s a great thing. 

June Atkinson-Murray OAM Wiradjuri Elder 

If you ever watch morning or afternoon TV, ads for funeral products are everywhere, you can’t avoid them; calling on viewers to prepare for the future and avoid being a ‘burden on their family.’ But funeral products designed to cover funeral costs and expenses are not just advertised on TV – they can be sold door-to-door, through cold calling and local presentations in community halls and events. Funerals in Australia are big business, and when you consider the profits on these products – for the sellers – that should come as no surprise.

For consumer advocates, products marketed to help people with their funeral costs and expenses have long been a concern – both in the Aboriginal communities and more broadly.  With many being worried about being a ‘burden’ on their family, the funeral sector has created a business model that fundamentally exploits people’s basic needs, crowding the marketplace with advertising, dodgy high-pressure sales and marketing tactics.

Sorry Business is a culturally important period for Aboriginal communities to mourn the loss of a loved one. The average funeral in Australia can cost from $6,000 and up to $15,000[1] but in communities there are related expenses for the deceased’s family and community including extensive travel, headstones, funeral clothes, catering, hire costs and accommodation. In instances where families stay together in one household, it results in significantly higher bills for essential services and living costs.  With Aboriginal communities burying loved ones at a higher rate than non-Aboriginal, the grief is accompanied with significant ongoing financial impacts.

Consequently, with limited financial assistance available to assist in covering funerals, there are high rates of people in Aboriginal communities taking up funeral insurance, joining funeral expenses funds and signing up to other products. These products contain cumulative financial risks and impacts, which can leave many people in financial hardship or without enough funds when the time comes.

What are the issues with funeral insurance and funeral expenses policies?

Some of the problems are the result of a huge loophole in the financial services laws. Prior to 1 April 2020, sellers of funeral expenses policies were not required to hold an Australian Financial Services Licence (AFSL) and were therefore not bound by the general conduct obligations and anti-hawking protections contained in the Corporations Act. These latter issues were of so much concern – particularly with respect to the disproportionate impact on the Aboriginal community – that the Hayne Royal Commission recommended that funeral expenses be subject to the same regulatory oversight as funeral insurance. This reform came into effect on 1 April, but only applies to people signing up to new policies. Existing policyholders have been left behind.

Furthermore, many funeral insurance and funeral expenses-only products are “stepped” policies, meaning the costs the consumer pays increase as they age, becoming progressively unaffordable. People living on the pension or other Centrelink benefits, for example, are unlikely to be able to keep pace with the rising costs of premiums, and if they miss out on payments the policy can be cancelled leading to the loss of all the money paid up to that point. Inevitably, this stepped rate structure leads to very high cancellation rates. ASIC found in 2014 that the of cancellations was 80% as a proportion of policies[3] with costs given as the main reason for cancellation.[4]

Funeral insurance is a lower value product the longer you live

In 2014, ASIC found the amount paid out by insurers was only 33% of the premiums collected in that same year.[5]

Unless the policyholder passes away in the 5-10 years after taking out a policy, they could end up paying more in insurance premiums than the cost of the funeral. This is particularly the case the younger the person is when they sign up. Further, significant exclusions usually apply in the first years that the insurer can use to deny a payout.

Funeral Insurance policies are often sold using inappropriate channels or techniques

Funeral insurance is often sold using high pressure sales practices, both in the initial application and in subsequent offers to increase benefits.[6] Cold calling and unsolicited sales have been rife, so it is easy to be misled about the costs of the premiums – particularly when customers enter these contracts over the phone. People aren’t being told that the premiums will rise or the extent by which they will increase. Many people believe that the premiums they pay are savings to pay out or that the money will go back to family – which is not the case.

Specific issues with funeral expenses policies and the impact on Aboriginal and Torres Strait Islander communities

The Hayne Royal Commission revealed systemic failures on the part of some funeral insurance providers to meet community standards and expectations. Commissioner Hayne noted “evidence pointing to predatory behaviour by insurers and salespeople.”[7] In the final report, Commission Hayne found that:

Aboriginal and Torres Strait Islander people, especially those living regionally or remotely, may have been particularly likely to be sold funeral insurance policies in circumstances where those policies held little value for them.”[8]

In 2018, the rate of Aboriginal child mortality was twice that for non-Aboriginal children.[9] There are higher rates of suicide in Aboriginal communities.[10] Intergenerational disadvantage, higher prevalence of disease, poor access to health services and other social determinants such as education, income and employment[11] have contributed to lower life expectancy rates within Aboriginal communities. [12]

With the lower rates of life expectancy and attributing factors, the “promise” of a product to pay for funeral expenses is an attractive option. But for many who are already struggling with finances, the amount paid into these products is rarely worth it.

The Aboriginal Community Benefit Fund, now ‘Youpla’: All take but little give

At the time of the Royal Commission, ACBF Holdings Pty Ltd, trading under the name ‘Aboriginal Community Benefit Fund’ or ‘Aboriginal Community Funeral Plan,’ now known as ‘Youpla’ – a funeral expenses policy provider – had 16,190 policies where customers potentially will pay more than the benefit amount and 754 policies where customers had already paid more than the benefit amount.[13] The average amount insured for ACBF’s customers as at 30 June 2013 was the lowest of all funeral insurers ASIC surveyed at $6,639, with the industry average being $8,859. ACBF’s claims payout ratio of only 13.9% was the lowest percentage of insurers ASIC surveyed.

Marketing and sales practices aside – funeral expenses policies remain wholly unsuitable to the needs of the Aboriginal communities.  ACBF obtained personal health information when signing up members, for example, and this could result in people paying more than they would if they had obtained funeral insurance from another provider.[14] ACBF’s funeral expenses policies did not pay out for suicide -despite higher rates of suicide in Aboriginal communities- until recently[15]. ASIC also found that 50% of funeral insurance products sold to Aboriginal peoples were sold to people under 20 years old. As at 2014, approximately two thirds of ACBF’s customers were aged under thirty and approximately one third below the age of fifteen.[16] There are many stories of policy holders who are paying for their own plan, as well as those of multiple children or people in their care.

It is a shocking reality that Aboriginal people experience higher rates of infant mortality, and services to meet the costs associated with burial of children have been identified as a need in some communities.[17] Whether this devastating need should be met and addressed by an insurance or funeral expenses policy taken by kin or the Aboriginal community at large is a broader question to ponder.

It is also clear that there is a need for a better way to cover funeral expenses for Aboriginal people, their families, and their communities. Financial and business support should be considered for small Aboriginal Community Controlled funeral providers to offer cheaper services to their communities, and not-for-profit community funds to meet funeral expenses should be.

The sad reality is that until proper regulation of the sector and alternative products are available on the market, funeral insurance will continue to seem like a viable option for the Aboriginal community -even if it is essentially junk.

ENDS

NOTES

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