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Insurer breached anti-hawking law 300,000 times

Glenn Freeman with AAP  |  11 Sep 2018Text size  Decrease  Increase  |  
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Life insurer ClearView (ASX: CVW) used "emotional" telephone pitches to sell accidental death policies to people on low incomes in more than 300,000 illegal cold calls, the royal commission has heard.

The royal commission resumed yesterday, zeroing in on independent insurer ClearView, which admitted to selling “inferior accidental death” policies.

Systematic mis-selling of life products heads up the agenda during the first stage of the insurance hearings, which runs from 10 September to 21 September 2018. The inquiry on Monday heard that ClearView set up a new sales centre in mid-2014 to make cold calls to sell life insurance, before closing the business at the end of 2015.

ClearView's chief actuary and risk officer, Greg Martin, admitted the products may have been marketed to a demographic that was not interested in the cover or could not afford it.

Unfair sales tactics cited include the use of emotional pitches during cold calls, to sell low-value life insurance products to people already medically rejected for full life insurance policies. 

magnifying glass scrutiny royal commission

 Unfair sales tactics cited included emotional cold-call pitches

Documents tendered at the commission suggest the policies were targeted at a low socio-economic demographic with "emotional" pitches to sell products of low value.

Senior counsel assisting the commission Rowena Orr QC said the strategy involved attempting to sell life insurance products to poor people by playing on their emotions.
Orr asked Clearview's Martin whether he thought the community "would expect that the life insurance products that you sell to them in outbound telephone sales will not be more expensive and of lower value than the products that you were selling to affluent people"?

Martin replied: "I would imagine most members of the pubic would not understand that terribly well, yes."

ClearView stopped cold calls of direct life insurance in May last year. But the company continues to sell accidental death insurance, which the regulator wants axed as it offers little value to consumers.

The inquiry also heard Australia's 10 largest life insurers have paid more than $6 billion in commissions over five years to get financial advisers to recommend their products.

Financial advice reforms in 2013 banned conflicted remuneration, but until January this year life insurers could continue to pay advisers high rates of upfront and trail commission to encourage advisers to recommend their products.

AMP among next in line

AMP Limited (ASX: AMP) is also slated within the current tranche of life insurers to front the royal commission, alongside CommInsure, Freedom Insurance, REST and TAL. The embattled financial services company, one of the biggest alongside the big four banks, has been considering selling its life insurance business for some time.

Ahead of its first appearance before the royal commission in May this year, AMP management had indicated it was "re-prioritising" its underperforming business units, including its life insurance operations in Australia and New Zealand.

Morningstar equity analyst Chanaka Gunasekera notes the business was struggling under "excessive claims" and write-downs in 2016 - along with much of the global life insurance industry. AMP's 2018 financial year result pointed to further claims liabilities.

"Management has some they were going to re-prioritise this insurance business, but the issue is whether they will get much of a price for it.

"They have been speaking about [selling] it for a long time, and had been meant to give an update about that in May this year, but this was overshadowed when the royal commission hit," says Gunasekera.

Insurance Australia Group (ASX: IAG) is also due to front the royal commission, which moves onto general insurers later this month. Warren Buffett's Berkshire Hathaway owns a $500 million stake in IAG, which includes a 3.5 per cent stake and a quota-sharing agreement.

AAI (Suncorp), Allianz and Youi will also appear in this round of hearings.

The sixth round of public hearings will consider issues associated with the sale and design of life insurance and general insurance products, the handling of claims under life insurance and general insurance policies, and the administration of life insurance by superannuation trustees.

The hearings will also consider the appropriateness of the current regulatory regime for the insurance industry.

 

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Glenn Freeman is senior editor for Morningstar, based in Sydney.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

. Glenn Freeman is senior editor, Morningstar Australia.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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