ASIC’s view of the life insurance market
In October 2014 ASIC released Report 413 Review of retail life insurance advice listing out the things ASIC say advisers are doing wrong. ASIC found evidence of poor advice including:
- failures to adequately consider consumers’ objective, circumstances and needs leading to situations where consumers suffered losses due to:
- inferior policy terms
- higher premiums
- health issues being excluded
- claims being denied which were previously covered
- unnecessary or excessive switching of policies to maximize commission income.
ASIC found evidence that lapse rates were high, with stepped premium policies lapsing at rates as high as 14%, and with average terms of less than eight years. This was attributed to:
- product innovation by insurers
- affordability issues
- advisers churning policies to maximize commission income.
ASIC observed a strong correlation between high lapse rates and up-front commission models. ASIC found that the quality of advice was poor. In particular it found that just over one third of all sampled advices did not comply with the law, and there was a high correlation between non-compliant advice and up-front commission models.
It’s fair to say that ASIC is critical of advisers and the standard of advice, and is not critical of insurers.
You can read the full text of ASIC Report 413 review of retail life insurance advice here: ASIC Report 413 Review of retail life insurance advice.