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19-188MR ASIC proposes to ban unsolicited telephone sales of life insurance and consumer credit insurance
ASIC is inviting feedback on its proposal to ban unsolicited telephone sales of direct life insurance and consumer credit insurance (CCI). Such a ban would prevent the sale of complex insurance products which consumers do not need, want or understand.
Before it makes a final decision, ASIC has today issued a consultation paper seeking views on the proposed ban (CP 317).
On 11 July 2019, ASIC published REP 622 Consumer credit insurance: Poor value products and harmful sales practices which identified unfair sales practices that were consistently failing consumers, and recommended a ban on unsolicited telephone sales of CCI.
This follows ASIC’s announcement in August 2018 that we would restrict unsolicited sales of direct life insurance after we found a link between outbound sales calls and sales conduct issues, including pressure selling (see: REP 587).
ASIC Commissioner Sean Hughes said, ‘ASIC will step in to stop practices that lead to poor consumer outcomes and destroy trust in the system. It is only fair that consumers have a proper opportunity to consider which insurance product best meets their needs and then compare alternative products, without feeling pressured to make a purchase.’
‘Such a ban is consistent with the Financial Services Royal Commission recommendations, and will provide consumers with further protections from misselling practices now, ahead of wider law reform by Government. Without such a ban, we are concerned that consumers will continue to be preyed upon by peddlers of inappropriate insurance products, using pressure sales tactics.’
The Royal Commission recommended that the law should be changed to clearly prohibit unsolicited sales of superannuation and insurance products. The Government has committed to implement this recommendation – in the meantime, ASIC’s ban will protect consumers where we have identified ongoing sales issues and have evidence of consumer harm.
This work forms part of ASIC’s broader priority to address harms in insurance – once the ban is implemented, we will monitor compliance and take enforcement action as necessary if insurers or distributors do not comply. ASIC also intends to review our guidance in Regulatory Guide 38 The Hawking Provisions (RG 38) later this year.
The consultation is open for a period of six weeks, with submissions due by 29 August 2019.
CP 317 details ASIC’s proposal to ban unsolicited telephone sales of life insurance (including funeral insurance) and CCI when sold with general advice or no advice. ASIC proposes to do this by using its modification power in s992B(1)(c) of the Corporations Act 2001. This power allows ASIC, in certain circumstances, to omit, modify or vary specified provisions of the law.
ASIC considers that use of the modification power is the most suitable way to implement a ban on unsolicited telephone sales for these products.
On 11 July 2019 ASIC released Report 622 Consumer credit insurance: Poor value products and harmful sales practices which found that the design and sale of CCI had consistently failed consumers.
In particular, ASIC’s review found that telephone sales practices caused consumer harm where:
- consumers were sold CCI despite the fact they were ineligible to claim under their policy; and
- telephone sales staff used high pressure selling and other unfair sales practices when selling CCI.
On 30 August 2018 ASIC released REP 587 The sale of direct life insurance which summarised the findings and recommendations from ASIC's review of the sale of direct life insurance products – that is, insurance sold without personal advice and outside group cover, such as through telephone sales or online.
This review found some firms engaging in sales conduct that created risks of consumers buying products they did not want, could not afford or that did not meet their needs. A link was identified between poor sales conduct and outbound sales calls.
ASIC has also conducted a number of other reviews relating to life insurance, including funeral insurance:
- Report 454: Funeral insurance: A snapshot highlighted high cancellation rates linked to insurers failing to ensure consumers understood the features of the products at the time of sale.
- Report 498: Life insurance claims: An industry review summarised ASIC’s analysis of life insurance claims including for term life, income protection, trauma, and total and permanent disability. ASIC found higher declined claims for direct life insurance, which raised concerns that these products were not performing as consumers or their families expected at claim time.
- Report 588: Consumers’ experiences with the sale of direct life insurance sets out the results of research into experiences in buying life insurance directly, including that some consumers struggled with the sales experience and the complexity of the products.
ASIC has taken action against a number of firms where we identified mis-selling or inappropriate conduct in the sale of direct life insurance and CCI:
- ClearView refunded over $1.5 million to 16,000 customers after pressuring them to buy life insurance over the phone(18-029MR).
- Latitude Insurance provided refunds of approximately $1.1 million to 905 customers after it mis-sold consumer credit insurance (CCI) with Latitude personal loans and incorrectly denied claims on CCI policies sold with Latitude and other credit cards (17-457MR).
- Commonwealth Bank has also refunded over $10 million for mis-sold consumer credit insurance (17-268MR).
ASIC’s MoneySmart website has information for consumers about what to check before buying a policy and provides a Life insurance calculator consumers can use to work out whether they need life cover or how much cover they might need.