'Pretty horrifying': Life insurance hard sell 'endemic' in sector
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'Pretty horrifying': Life insurance hard sell 'endemic' in sector

High-pressure sales tactics used to flog life insurance over the phone are endemic in the industry, insurance experts say, as consumer advocates claimed the model was broken and called for a complete ban on the practice.

Mark Kachor, the managing director of life insurance and superannuation researcher DEXX&R, said evidence before the financial services royal commission of cold calling by ClearView and Freedom Insurance was typical of "direct call centres across the [insurance] industry".

Calls to ban cold call sales of life insurance are growing louder

Calls to ban cold call sales of life insurance are growing louder

Photo: Fairfax Media

The royal commission has heard this week how ASX-listed ClearView admitted to more than 300,000 criminal breaches of laws banning the sale of financial products during unsolicited meetings or phone calls. Its sales tactics included targeting people in remote indigenous communities with near-worthless policies.

It also heard how Freedom Insurance used hard-sell techniques over the phone, including to a 26- year-old man with Down syndrome who was unable to understand the cover he was buying. The company initially failed to cancel the policy despite calls and an email from his father, before it later withdrew the policy.

“They have been chosen [by the royal commission] as the example for all of this, but you will find the ClearView experience across-the-board," Mr Kachor said, referring to "direct" selling on the phone as opposed to selling through an adviser or a super fund.

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Mr Kachor also questions the value of some of these policies, which often have lots of exclusions.

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“You have to have all of these exclusions, because the more questions the sales agent asks [the potential customer], the less likely the person is to buy," he said. “The fundamental principle is to ask no questions and exclude all pre-conditions, for example, so that someone can say ‘yes’ and you [the insurer] contain the risks."

A review of direct life insurance sales released late last month by the Australian Securities and Investments Commission (ASIC) also found life insurance sold in this way was much more likely to be rejected if a claim was made.

Susan Quinn, senior policy officer at the Consumer Action Law Centre, who is attending the royal commission in Melbourne, said she believed the practices were endemic in the industry.

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"What's really clear so far is that there are major problems with cold calling and flogging life insurance," she said. "And the incentives and commissions sitting behind what is going on are pretty horrifying to see displayed before us, with little legal compliance.

"To hear that a company [ClearView] may have breached provisions in legal compliance over 300,000 times is unbelievable."

In its review, ASIC unveiled plans for tighter rules governing life insurance companies and their distributors directly selling their policies to consumers through outbound sales calls.

Ms Quinn said the Consumer Action Law Centre wanted an outright ban as the "law is not working ... the way it is intended".

Alexandra Kelly, principal solicitor at the Financial Rights Legal Centre, also supports a ban on unsolicited sales of life insurance over the phone, saying the model appears to be broken.

Ms Kelly said it was common for clients to not understand the life cover they had been sold through an unsolicited sales call, and recordings of these calls often showed sales people racing through the critical information.

The royal commission had also showed types of life insurance being sold through cold calling were often "junk", she said, because of the difficulties customers faced if they needed to make a claim.

"I don't think there's value in it if you're effectively tricking people through high-pressure sales tactics to sign up," Ms Kelly said.

Labor's financial services spokesperson, Clare O’Neil, said testimony to the commission on Tuesday was "gut-wrenching”.

“Words cannot describe how disgusted I am that a young man’s disability was exploited so that an insurance company could meet a sales target,” she said. “The commission this week is making it quite clear that the law isn’t sufficiently protecting vulnerable people. The royal commission is likely to provide detailed recommendations to fix some of these problems, and Labor keenly awaits that report.”

Writes about personal finance for Fairfax Media, Sydney, Australia.

Clancy Yeates writes on business specialising in financial services. Clancy is based in our Sydney newsroom.

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