All businesses selling general or life insurance are likely to be affected by a 2014 ASIC’s focus, according to the managing director of The Fold
Claire Wivell Plater said ancillary or “add-on” insurance, sold at the point of sale, is a new sticking point for ASIC, who have already spent a lot of time looking at motor, consumer credit and travel insurance, and don’t like what they see.
“ASIC has devoted two sessions to this issue at its 2014 annual forum, bringing the CEO of the UK Financial Conduct Authority, Martin Wheatley, over to Australia to speak about the UK experience,” she said. “Mr Wheatley let slip a few tips about how they do it in the UK – they follow the money and look at areas such as business model, speed of growth, comparative gross margins, customer base and culture.”
While not all add-on insurance is problematic, those products sold at the point of sale have the potential to raise the ire of ASIC, Wivell Plater said.
This is because the underpinning philosophy seems to be that the more obstacles that are put in the way of people’s buying decisions, the better the quality of the decision and the less opportunity for mis-selling and overselling, she said.
“Regulators are now using behavioural economics to analyse financial services selling practices, with alarming potential consequences for distributors of ancillary insurance and credit providers.”
Wivell Plater recommends that insurance advisers review a selection of the processes within their business, including product design, sales processes and collateral, remuneration structures, and sales practices in the field.
Adviser could be singled out for special attention if sales processes include pre-ticked boxes and bundling of costs into other products, misrepresenting the need for cover, or the encouragement of aggressive sales techniques, she said.
And ASIC’s focus won’t just be on existing businesses, she warned.
“It’s also likely that the licensing division will look at these issues when considering licensing applications, so a review of add-on or point of sale products must be a priority in order to stay out of the regulators’ sights.”