Direct life insurance may come under review by the Australian Competition and Consumer Commission (ACCC) after it was the centre of discussions between the Association of Financial Advisers (AFA) and a Parliamentary Joint Committee (PJC).
Speaking at the public hearing of the PJC Inquiry into Life Insurance in Sydney last week, the AFA raised concerns about the lack of underwriting at time of application within direct insurance and the ability of direct insurers to retroactively underwrite a policy holder at time of claim.
Responding to a question from PJC member Jason Falinski, MP as to whether direct insurance policies were flawed as contracts, AFA Chief Executive, Brad Fox stated it was not the policy but the ability of direct insurers to work through a claimant’s medical history that was the problem.
“If the contract did not have ability to exclude pre-existing conditions, it would be a good contract and consumers would be covered for what they think they are covered for, but because of the ability to go back and underwrite from the time someone started to buy the policy, and even years before, consumers are not aware they may not be covered,” Fox said.
“Many consumers would not know…what an underwriter would class as serious or not serious…”
Falinksi also questioned whether consumers were aware of the need to disclose information at time of application, despite not knowing what they should disclose, to which Fox responded that most consumers would not know what an insurer considered as relevant for the purposes of disclosure.
“Many consumers would not know or it would not be fair to expect them to know what an underwriter would class as serious or not serious. Most people would not feel they would have to declare some issues if they no longer suffered from them or had recovered from them in the past,” Fox said.
“It would be much better if we provide underwriting up front than leave a gap of interpretation. It should not be permissible to bypass underwriting at commencement of a policy but instigate it at time of claim,” Fox said.
While Fox would not be drawn on a question from PJC member Matt Keogh, MP of whether direct life insurance adverts which offer cover on the basis of a few questions were “wholly misleading” fellow PJC member Senator John Williams stated “…it was worth the ACCC looking at if they are false and misleading and is something we can discuss in our recommendations.”
A good question to ask is, why the Best Interests duty doesn’t apply to these direct insurance “scammers”?
They get paid the same as advisers, give no advice and don’t have to waste 3 hours doing a worthless SOA which no one ever reads. They can convince people to cancel their existing underwritten policies and replace them with a cheaper (but often worthless) policy and when the client doesn’t get paid they get out of responsibility because of ‘general advice”.
Just extend the Best Interests Duty to all insurance sales, or remove it entirely. a Level playing field would be nice, or at least remunerate advisers differently as we have a whole lot more paper work, underwriting, responsibility, duty to the client and most importantly THE UNPAID HELP OFFERED AT CLAIM TIME.
I cannot understand the advisers are constantly getting thrown under the bus by ASIC and the banks when almost every sale made by the direct insurers (if done following the rules we abide by) would not pass the best interests duty test.
WOW – couldn’t have said it better Jake. We should all go out and SCREAM this from the rooftops. Sickens me that these comments even have to be broadcast to regulators, life companies and ‘special’ interest groups, et al, at this late stage of the game.
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Best interest of the clients has become a convenient catch phrase for the life companies and regulators – a throwaway line to serve their own needs and best interests! Sickening, illegal and immoral all! Oh, don’t forget now, it is all the adviser’s fault this debacle and they should have their pay halved for their behaviours – ALL of them, yep it is their fault isn’t it . . . (NOT!)
If insurers were banned from using words like “no medicals or tests required” and “no complicated forms” and “apply in minutes” from their advertising, maybe consumers would take more note of the importance of disclosure. Insurers make it easy to obtain the insurance but then use the lack of knowledge regarding disclosure of their policy holders to deny their claim. This is what the Life Insurance Framework should have been constructed around, not Advisers who ensure a smooth claims process by explaining the duty of disclosure upfront.
Direct adverts are of course wholly misleading. They state guaranteed no medicals but decline customers or switch the sale to accident only cover for medical issues that an adviser could get through on a retail product. They underwrite fully at claim. They do not give clients future projections in quotes. The list goes on and on about how bad these direct insurers are.
What is just as bad is the CEO of the AFA not willing to be drawn on the question.
Answering honestly would upset the AFA’s paymasters at the FSC who are desperate to sell more direct junk and get rid of the adviser.
The biggest issue with direct insurance are the pre-existing conditions.
Since the government continues to advocate regulation, regulate direct insurers and make it mandatory that each application form has a huge front page that specifically explains what a pre-existing condition is, and if the applicant feels they may have one, or are unsure – seek medical advice whether they have an pre-existing conditions.
The government puts a lot of pressure on the insurance industry, why not set up an industry wide claims help line, for those consumers who have direct insurance policies, paid premiums and got declined at claim time.
Insurance contracts are simple, both parties get into an agreement with utmost good faith, the insured expects to pay out when a claim arises. The insurer is expected to pay.
For any disputes go to the proposed claims help line.
The help line will be able to gather data on what the actual common issues are.
Those findings can advertised to the public, so they can better select an insurance policy that suits them. Insurers who want the business will adapt and create contracts accordingly.
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