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3.2 Insurance

The insurance sector comprises life and general insurance and includes insurance product providers (including friendly societies), insurance product distributors, and risk management product providers.

This year, ASIC’s work in insurance focused on the design and sale of inappropriate products, particularly to vulnerable consumers; our new regulatory powers to act on issues highlighted by the Royal Commission; and responding to the impact on businesses and consumers of the COVID-19 pandemic.

Consumer credit insurance

This year, our work to address the inappropriate sale of consumer credit insurance (CCI) by lenders focused on ensuring that consumers who have been harmed are remediated, CCI products offer better value to consumers, and sales practices comply with our requirements.

In 2019, we reported on our review of CCI sold by 11 major banks and lenders, which found poor value products and harmful sales practices: Report 622 Consumer credit insurance: Poor value products and harmful sales practices (REP 622).

Since we finalised our review, all lenders included in the review are no longer selling CCI with credit cards, personal loans or home loans.

We have also secured significant remediation, totalling over $160 million for more than 434,000 consumers, for the period October 2011 to April 2020. This remediation related to conduct where:

  • lenders sold CCI policies to consumers who were ineligible to claim or unlikely to benefit from or need cover
  • lenders used pressure selling or other unfair sales tactics, such as making false representations, in selling CCI to consumers
  • consumers were incorrectly charged for CCI or their claims were incorrectly declined
  • lenders did not have adequate processes to help consumers in hardship, or trustees of deceased estates, who had a CCI policy to lodge a claim
  • consumers received very little or no value from the product.

ASIC will continue to collect and publish claims ratios to monitor how CCI products provide value to customers who hold cover and pay premiums. We will ensure that lenders meet the expectations we set out in REP 622.

Ban on unsolicited sales of direct life insurance and CCI

On 13 January 2020, ASIC used its modification powers to implement a ban on unsolicited ‘cold call’ telephone sales of direct life insurance and CCI.

The ban addressed poor sales practices that led to unfair consumer outcomes – for example, consumers being sold policies they are ineligible to claim on, high lapse rates, and poor consumer understanding of product features and coverage.

Our legislative instrument ASIC Corporations (Hawking – Life Risk Insurance and Consumer Credit Insurance) Instrument 2019/839 prohibits the offering of life insurance products and CCI products in the course of, or because of, an unsolicited telephone call, unless the person has been given personal advice.

The ban is consistent with recommendations made by the Royal Commission and provides protections to consumers that complement broader legislative reform by the Government. Firms are no longer able to call consumers out of the blue and use sophisticated sales tactics to pressure people into buying life insurance and CCI products.

The ban followed our earlier review of the sale of direct life insurance, summarised in Report 587 The sale of direct life insurance (released August 2018). The review found links between outbound telephone sales, sales conduct issues and poor consumer outcomes. Similarly, Report 622 Consumer credit insurance: Poor value products and harmful sales practices (released 11 July 2019) also found that the design and sale of CCI had consistently failed consumers, with particular concerns about unsolicited telephone sales.

Total and permanent disability insurance

In October 2019, we released the results of our review of total and permanent disability (TPD) insurance: Report 633 Holes in the safety net: A review of TPD insurance claims. The report builds on ASIC’s earlier review of life insurance, set out in Report 498 Life insurance claims: An industry review. Earlier in the year, on 4 July 2019, we had published Report 621 Roadblocks and roundabouts: A review of car insurance claim investigations on the findings of our work on insurance claim investigations.

For the TPD review, we obtained data on 35,000 TPD claims finalised in 2016 and 2017 and reviewed over 2,400 documents from seven insurers.

We also commissioned an independent market research firm to conduct qualitative research with consumers who had made a TPD claim with one of the insurers in our review, and undertook statistical modelling of claims data to identify factors such as TPD definitions that were significant in determining whether TPD claims were declined or admitted.

Our TPD review found:

  • unfair and restrictive TPD definitions resulting in poor consumer outcomes – for example, the ‘activities of daily living’ test that resulted in three in five finalised claims assessed under the test being declined
  • unnecessary challenging and onerous claims handling processes contributing to withdrawn claims
  • insurers lacking key claims data to help them effectively manage the risk of consumer harm
  • two insurers declining over a quarter of their finalised claims
  • those two insurers declining more claims than our statistical modelling predicted, with the declined claim rate for one of the two insurers being almost double that predicted by our modelling.

ASIC expects life insurers to improve product design, claims handling practices and data resourcing to ensure that the risk of consumer harm is minimised and products are designed and sold in a way that provides real value to consumers.

We are undertaking a follow-up questionnaire and closely monitoring how insurers respond. We will take further action, including enforcement action where appropriate, against insurers and superannuation trustees who fail to properly address our concerns.

ASIC’s response to natural disasters

ASIC established a dedicated working group to triage issues arising from recent natural disasters and events, such as the bushfire crisis that significantly affected many Australian communities in the summer of 2019–20, and to coordinate our response to those issues.

The working group monitored emerging issues based on information from the banking and insurance sectors, consumer groups and the public.

ASIC worked cooperatively with other regulators to coordinate our responses to consumer and regulatory issues.

We reinforced ASIC’s expectations about fair and effective insurance claims handling for people affected by the bushfires.

We warned against unscrupulous insurance claims management ‘service providers’ – unlicensed for-profit businesses that sign up policy holders and, for a fee, undertake the administrative work on an insurance claim. To the extent our jurisdiction allows, we will take regulatory action to provide interim consumer protections ahead of broader legislative reform on claims handling to be considered by Parliament.

We also provided relief for bushfire-affected companies, including incorporated small businesses, by reviewing ASIC fees incurred (on application), considering alternative payment options and, in some circumstances, potentially waiving fees.

We regularly updated our natural disaster information for consumers, via our media releases and our Moneysmart website.