Freedom’s decision to end the sale of insurance via outbound call centres begs the question whether this form of selling is appropriate for any product.
There’s little doubt that many at the corporate regulator, and those inside the royal commission, will be cheering Freedom Insurance’s decision to stop using outbound call centres to flog its crappy insurance.
But spare a thought for the 350,000 existing Freedom customers who will continue to pay premiums, administration fees and trailing commissions that have a net present value of almost $74 million.
Those policy holders should be asking three questions:Â How the sale of dubious insurance policies, using dubious sales techniques, was allowed to accelerate in such a marked way in the last three years?
Could they have been protected ifÂ the government had been faster in handing the Australian Securities and Investments Commission product intervention power first suggested by David Murray’s Financial Systems Inquiry in December 2014?
And should any company, in any sector, really be using pressure selling techniques in this day and age?
As the royal commission heard, around 85 per cent of Freedom’s sales were for funeral insurance, including the ominously named final expenses cover, which typically added accidental death cover to a funeral insurance package. These products sit under the broader category of life insurance.
Funeral insurance is itself dubious enough, and consumerÂ groups such as Choice have long questioned its value. One of the big problems is that under many policies, premiums increase as the insured gets older, which meansÂ a policy holder ends up paying more in premiums than the value of the cover.
But as the commission heard, Freedom also sold a bigger package of products around its funeral insurance in something called final expenses cover. The key wrinkle was the inclusion of accidental death cover, another product rendered close to worthless by the narrow definition of “accident” and a broad set of exclusions.
Perhaps the best example of these exclusions was that a policy holder killed in a helicopter accident wouldn’t even be covered.
As Freedom ramped up its sales efforts for funeral and final expenses insurance, primarily using its call centre â a sales channel it refers to as “direct” â the sales of accidental death cover exploded too.
In 2015, Freedom sold 9611 accidental death policies, but this leapt to 19,282 in 2016 and rose again to 21,079 in 2017.
In 2018, as the royal commission was established and started hearings, Freedom turned things up to a cracking pace, with 12,007 policies sold in the first half of the year.
Oh, and the number of claims paid out in any one year? It was always below 22, which gives you a sense of how few accidental deaths actually occur, and how few would then be covered by a Freedom policy.
Freedom was forced to announce major changes to its business model on the eve of its appearance at the royal commission â literally the day before â after a scathing report from ASIC released in August essentially called for an end to direct sales of life insurance products.
Was ASIC too late to stomp on this sector, given the widespread problems it found across the board? Possibly.
But the product intervention powers that have long been promised to the corporate regulator would have also been important toÂ stopping this behaviour.
It’s important to note these powers are broader than just banning a product, and could include warnings on products, or directions to change how a product is sold. The suite of powers could have also changed the way the life insurers marketed these products to better protect vulnerable members of the community.
The product intervention powers have been referred to the Senate Economics Legislation Committee, which will report by November 9.
Let’s just get on withÂ it.
Freedom’s decision to end the sale of insurance via outbound call centres raises a question that should reverberate across a wider range of sectors.
Is this form of selling appropriate for any product?
Clearly, outbound call centres can deliver results, as the rapid growth of Freedom’s products in the past four years shows.
But it’s a high-pressure tactic that often involves some complex products and services â including, for example, energy or telecommunications â which can be particularly difficult for vulnerable people to deal with.
In a world where every company needs to defend its social licence to operate, and professes to put their customers first, is this a practice that businesses really want to be involved with?