Flipping Life Insurance - Australia

The corporate watchdog is cracking down on the life and funeral insurance industry after discovering thousands of people are cancelling policies after being sold inappropriate products.

The Australian Securities and Investments Commission will place new restrictions on some sales of life and funeral insurance in order to protect consumers.

The move comes after the regulator reviewed 11 direct life insurance sales by firms including ClearView, CommInsure, NobleOak Life, and Suncorp Life & Superannuation and found consumers were cancelling their policies "in very high numbers".

"Life insurance is a long-term product but cancellation rates and poor claim outcomes show that people are being sold products they don't want, can't afford, or don't perform as they expected," ASIC chair James Shipton said on Thursday.

ASIC's review found one-in-five life insurance policies were cancelled in the cooling off period, with another one-in-four ditched within a year.

Three-in-five policies were cancelled within three years.

When policyholders tried to make a claim, 15 per cent were rejected and another 27 per cent were withdrawn.

Consumers also struggled to understand life insurance products due to their complexity.

In an attempt to protect consumers, ASIC announced it would restrict outbound sales calls for life and funeral insurance.

"We are considering what regulatory tools we will use to implement this reform," the report on its review into the life insurance sector said.

"In the meantime, the small number of firms who are still engaged in outbound sales will need to move away from this practice."

As part of the review, the regulator's staff listened to 540 recorded sales calls and found all of the firms selling the policies failed to provide adequate information about the cover, including key exclusions and future premium increases.

Four firms put consumers under pressure by refusing to send out paperwork unless they committed to take out a policy.

More than half used incentive schemes, including bonuses, to encourage sales staff to prioritise closing a sale ahead of customer needs.

ASIC said while some companies, including ClearView, had already agreed to refund thousands of customers sold inappropriate products, it was considering what further remediation was needed.

ASIC's findings come as some of Australia's largest insurers prepare to be grilled in September by the banking royal commission about problems with the sale of life and general insurance products and the handling of claims.

Representatives of AMP, Clearview, Commonwealth Bank's CommInsure, Freedom Insurance, REST and TAL will give evidence to the inquiry.