In light of the revelations around the insurance industry during the Financial Services Royal Commission, discussion is now developing around how reforms can be implemented.
While the full report – and accordingly, its recommendations for reform – is yet to be finalised, there are certain areas of the industry which have already shown a clear need for change. Insurance Business spoke to Denise Boyd, director, policy & campaigns of the Consumer Action Law Centre for her views.
“It seems obvious, but the Royal Commission revelations indicate that it’s time for insurers to take their legal obligations seriously,” said Boyd. “It also appears that the culture and practices within some insurers do not align with community standards and this can ultimately have an impact on the bottom line.”
Boyd highlighted a number of potentially problematic areas, including sales incentives which encourage staff to sell low value insurance policies to people who may not need, want or even understand the insurance. She also raised concerns around the way insurance industries have treated claimants who make mental illness-related claims.
Add-on car insurance has also been a particular focus over the last few days and, accordingly, the Consumer Action Law Centre has set up DemandARefund.com to help people seek refunds where relevant.
“More than 1 in 4 people who use the website say the insurance was added without their knowledge,” noted Boyd. “Others say they were told they had to buy it. To prevent this conduct, there needs to be a delay between the purchase and the sale of insurance to ensure people have time to think about if they want to buy the policy, after which they can contact the salesperson if they decide they want the insurance.”
Boyd also outlined three more key suggestions for industry reform:
- Ban unsolicited sales of all financial products to prevent cold-calling.
- Ensure that ASIC has remit over claims handling (i.e. remove exemption from Corporations Act definition of ‘financial services’).
- Extend prohibition on unfair contract terms to insurance – currently insurance is the only industry exempt from this process in Australia.
Boyd additionally noted that brokers have an important role to play in this process, by ensuring that they’re recommending the best possible policies for their clients.
“Low payout ratios and high decline rates can be a good indication of a low value policy,” said Boyd.