Risk advisers are upset with big bank-owned insurance companies offering the public ‘no strings attached’ life insurance which effectively leaves them in the same – or worse – predicament as if they had no insurance at all.
Ava Insurance Consulting Group owner Anita Muecke took to networking site LinkedIn to air her grievances with such practices and find out if others had the same experience – of which an overwhelming number had and were calling for change.
A woman was referred to Muecke after she could not get a life insurance pay-out from a bank-owned insurance company. She had bought a policy over the phone when her bank cold-called her after she took out a new credit card. They offered her life insurance, which she took – and subsequently took out for her husband, too.
All the information the bank wanted was the couple’s names, ages, and whether they were Australian citizens.
“No health questions, no medicals, no forms, nothing like that. No advice,” Muecke told Wealth Professional.
The couple paid for the policy for seven years and when the husband died last year the wife put in a claim – denied because he died indirectly from a pre-existing and common medical condition, obesity.
Muecke says the insurers could deny the claim because the policy contained broad exclusions which included any condition the insured had for the six years before the date of application.
“They’re within their right to decline it, but my issue with it was they shouldn’t be on the market. People are innocent, people are naïve. People think ‘I’m paying this money every year; if I die I’m going to get money’. People don’t perceive that being overweight might mean they aren’t covered for all those years.”
Muecke is upset the public are not receiving any advice from bank-owned life insurance companies, before they take out insurance. She believes it is unfair an insurer can sell these policies without mentioning they also have a policy that is fully underwritten, when financial advisers have an obligation to inform clients of all the choices available.
“People don’t understand the nature of what they’re purchasing. And for me the issue is when I advise a client, I tell them in my statement of advice what the other alternatives are, and that’s part of my obligation of care to them.
“So I don’t understand why a bank can call one of their customers directly and ask whether they’d like to buy life insurance when they also offer through different channels much better cover.
"The core point that consumers need to be made aware of is the difference between direct insurance where the insurer asks no health questions and provides cover with misunderstood blanket exclusions versus retail or advised insurance that is, ironically, usually cheaper and fully underwritten.
“I find it insidious that they’re allowed to sell them policies like this, that’s the part that upsets me.”
There should be an obligation on bank-owned insurance companies to explain to clients if there is anything in their past which could contribute to death – such as a melanoma – they are unlikely to be covered, she said.
Muecke also thinks there is no point putting in legal jargon into the fine print for the customers – it has to be “reasonably plain English” with examples provided, so the customer understands what they are getting into.
The Association of Financial Advisers need to lobby Financial Services Council and the government to change this, Muecke said.
And as she asked on social media: “Why – as an industry – aren't we doing more about these bogus insurance policies that threaten to wreck the trust we all work so hard to build with our clients and with the wider community?”
AFA chief executive Brad Fox posted the following on the LinkedIn discussion started by Muecke on the topic:
“Like all of you that have commented on this, it horrifies me. The recurring challenge is the need to educate consumers before they make an uninformed decision where the shortcomings aren't found until it is too late (such as in this case).”
He told Wealth Professional
the issue is on the AFA’s policy agenda to consider.
“What’s concerning is the difference in levels in consumer protection when seeing an adviser and buying from a direct insurance offer. Australia has an underinsurance problem so we don’t want to overcomplicate things, but we have a responsibility to make sure clients don’t have a bad experience with direct insurance that may adversely affect their experience with life insurance as a whole.
“There’s a massive difference in underwriting standards and product definitions. What we don’t want is people having an adverse claims experience and then they throw the whole life insurance industry in one bucket.”
But what should be done?
One aspect is to talk to Australians and educate them about the differences between direct and adviser-led insurance, said Fox. “This is not an easy task with close to 25 million Australians. It will be a big job and not up to the AFA alone.”
The other option is to look at policy settings and make sure they are right, Fox said. “Is compliance too high for advisers? Is it too low for direct insurance?”
AFA intends to talk to other organisations like the FSC to see whether there is consensus something needs to change.