Uphill battle made harder for insurers

  • By Lucas Baird

A summary of statements from life insurers to the financial services royal commission has laid bare the uphill battle ahead for the industry as they seek to prove the value of accidental death insurance to regulators.

The products were subject to heavy scrutiny as part of a late-August Australian Securities and Investment Commission report which found accidental death insurance had a successful claim rate of just 16 per cent - ASIC then told insurers to "demonstrate that accidental death insurance can meet consumer needs," or they would be expected to stop selling it.

But counsel assisting the banking royal commission Rowena Orr has made that task increasingly difficult for the sector by reading out statistics enclosed in statements to the inquiry that showed limited claim applications and even less benefit approvals.

One insurer even failed to approve any of its accidental death insurance claims.

"The information provided to the Commission by the ten entities is consistent with the view recently expressed by ASIC that accidental death products have substantial limitations and limited benefits for consumers," Orr said.

At CommInsure, 96 per cent of the claims were denied. Freedom Insurance, which sold 65 thousand of these policies over the last five years, only received 55 claims. Meanwhile ClearView collected $38.8 million in premiums in the same period and received just 37 claims. Auto and General Insurance did not approve the only claim it had.

The main point of contention for the denied claims was that the deaths were not accidental - including one instance where the claim was thrown out because the insured was murdered.

Several of the companies scheduled to appear before the insurance round of royal commission hearings have already decided to stop selling accidental death insurance, however, others have decided to dig in.

Freedom Insurance's chief operating officer Craig Orton declared as recently as Tuesday that his company would continue to sell the product, albeit now only through inbound sales channels.

Orton "concerned" after issues with retention policies revealed

Orton made the statement whilst giving evidence in Melbourne to the inquiry and he continued to give evidence on Wednesday morning before Orr summed up the accidental death insurance statistics.

He faced questions regarding Freedom's in-house reactions to a father who was "concerned" that his audibly-disabled son with Down Syndrome had been sold accidental death insurance via an unsolicited call and Freedom's policy retention procedures.

Orton said the responses were "childish" after being confronted with emails where the livid father was described as a "whinger" and where the salesperson who sold the policy sent 25 sad-face emojis to a coworker who informed him the policy would be canceled.

The retention policies were also flagged as a concern after it was revealed retention services had initially attempted to save the sale on a phone call with the father when he was trying to cancel the service.

Retention services had key performance indicators and incentives tied to the policies they could save and, between mid-2017 and mid-2018, 75 per cent of callers who said they couldn't afford or didn't want the policy ended up keeping it with no change to the policy or payments.

After Orton's cross-examination finished CommInsure managing director Helen Troupe appeared on the stand to give evidence for the remainder of the day.

The hearings continue in Melbourne.