ASIC has said general insurers should no longer be able to pay brokers commissions.
by James Fernyhough
The Australian Securities and Investment Commission has called for a blanket ban on commissions on all general insurance products, as one of a number of sweeping reform recommendations for the insurance sector.
In its submission to the Hayne royal commission’s insurance round, published on Thursday, the corporate watchdog also called for an outright ban on the sale of three types of insurance: accidental death insurance, “tyre and rim” car insurance and certain types of disability insurance.
It also called for more powers to intervene in the claims handling process.
ASIC’s call for major reform comes after the royal commission exposed misconduct in both the life and general insurance sectors during two weeks of hearings in September.
Recurring themes included extortionate funeral insurance premiums, the refusal to pay out mental health-related claims, and the mis-selling of insurance polices by car dealers who were receiving commissions. In one case,Â Baptist pastor Grant Stewart revealedÂ that his son â€“ who was born with Down syndrome â€“ was bulldozed into buying a package of insurance from a Freedom InsuranceÂ call centre operative.
The call for a ban on certain products puts ASIC at odds with fellow financial regulator the Australian Prudential Regulation Authority, which had already explicitly opposed imposing any such bans.
“ASIC considers that there are certain insurance products that should not be sold,” the submission stated.
“A lack of effective competition and demand-side pressure associated with complex products like insurance means that, in some instances, market forces alone will not drive poor products from the market.”
ASIC also called for a reclassification of funeral insurance as a financial product under the Corporations Act.
Baptist pastor Grant Stewart revealed that his son â€“ who was born with Down syndrome â€“ was bulldozed into buying a package of insurance from a Freedom Insurance call centre operative. AAP Image
‘Poor consumer outcomes’
ASIC’s call for a ban on general insurance commissions expands on the Future of Financial Advice (FoFA) reforms of 2013, which banned financial advisers from receiving commissions on financial products they recommended. Life and general insurance products were exempt from this ban.
But in its submission to the royal commission ASIC said the exemption for general insurance products should be scrapped.
“ASIC’s view is that the negotiation, payment and acceptance of conflicted remuneration has contributed to poor consumer outcomes, such as sales of products with little or no value to consumers, or which do not meet consumer needs,” the submission stated.
QBE told the royal commission it had refunded 28,520 customers almost $16 million who were mis-sold add-on insurance by car dealers. Ian Waldie
ASIC did not support banning car dealers from selling add-on insurance â€“ a major focus of the commission hearings â€“ saying a ban on commissions, along with better supervision and a deferred sales model, would prevent mis-selling in the future.
The Insurance Council of Australia, the peak body representing Australia’s general insurers, immediately hit back saying a blanket ban on commissions was “not warranted”.
“The Insurance Council is supportive of exploring reform options to ensure commissions do not exceed acceptable levels,” the ICA’s general manager communications Campbell Fuller said, adding the ICA would review ASIC’s submission and await Commissioner Hayne’s final report.
ASIC did not recommend banning commissions on life insurance products immediately, but said if consumer outcomes had not improved within three years, there would be “a compelling case” to introduce a ban.
Senior Counsel Assisting Rowena Orr QC at a royal commission hearing. The commission has received a submission from ASIC saying the exemption for general insurance products should be scrapped. Internet
The regulator also called for a ban on insurance companies cold-calling consumers to sell products.
ASIC did not support banning the surveillance of customers who had made mental health-related disability claims, but called for tougher rules on how they can go about it.
ASIC said accidental death insurance offered “dubious benefits to consumers” with a claims ratio of just 16 per cent. That means for every dollar an insurer receives in premiums, it pays out just 16Â˘ in claims.
This, ASIC said, was because the definition “accidental death” allowed for too many exclusions. ASIC said accidental death was being sold as either a pointless add-on to comprehensive life cover, or as an often-worthless downgrade for consumers who could not afford full cover.
ASIC called tyre and rim insurance “a poorly designed negative or low-value product”, saying commissions paid to brokers were more than five times the amount paid out in claims.
“Based on our reviews, we consider that the products are unlikely to be consistent with the needs and objectives of consumers in most cases,” ASIC stated.