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Funeral insurance beset with problems

Serious concerns over the business practices of funeral insurers are nothing new. Aggressive sales representatives, non-payment, policy changes and cancellations with the loss of premiums paid, along with the targeting of Aboriginals as young as 20 are all issues that have been exposed in the past.

There are ethical providers of funeral insurance operating in the industry, but all insurers involved in the business are unfortunately likely to find themselves judged as harshly as the dodgy operators that have been preying on susceptible people.

The Hayne Royal Commission has heard in recent days how Indigenous communities have been targeted with funeral insurance policies that were not only inappropriate and unneeded, but also cost more than the benefit paid out.

In some cases Aboriginal people have ended up paying for funeral coverage for multiple members of their family, including children and grandchildren.

Cultural and social factors as well as low financial literacy make Aboriginal and Torres Strait Islander people particularly susceptible to aggressive sales tactics, and funeral insurers have taken full advantage.

One such insurer, the Aboriginal Community Benefit Fund (ABCF) – whose only link to aboriginality is its name – has been singled out more than once for questionable business practices.

In 2016, the Department of Human Services had to take the ABCF to the Appeals Court to prevent it deducting policy premiums directly from Centrelink payments. A previous government ruling that prevented the ABCF from doing this had been overturned by the insurer in the Federal Court.

Now the ACBF has been accused of selling a policy to indigenous woman Tracey Walsh that resulted in her paying more in premiums than the benefit she was entitled to. (The matter was settled out of court earlier this year.)

Nathan Boyle, the Senior Policy Analyst at the Indigenous Outreach Program at the Australian Securities and Investments Commission (ASIC), told the commission ACBF sales representatives may have misrepresented the product’s suitability, price, and benefits.

Another funeral insurer, Let’s Insure, kept a customer on the phone for 38 minutes in an attempt to get her to purchase a funeral insurance policy ­despite her telling them she already had a policy with another provider.

Three years ago ASIC excoriated the funeral insurance industry for this kind of behavior in a damning report which found that half of all indigenous people holding funeral insurance are less than 20 years old. By comparison, more than half of all people with such a policy are aged between 50 and 74. 

At that time ASIC deputy chairman Peter Kell slammed the insurers responsible for obvious faults in almost every aspect of their products – in cost, design, marketing and sales.

The funeral insurance scandal has most of the distasteful features exhibited by Combined Insurance, a one-time subsidiary of Ace Insurance, which found itself cornered by ASIC shortly before Ace rebranded as Chubb.

In 2016 Ace agreed to repay all customers affected by mis-selling of sickness and accident policies by Combined’s authorised representatives and to make a $1 million donation to financial counselling and literacy initiatives.

It was the second time ASIC had penalised Combined Insurance. In 2000 the insurer was caught out selling inappropriate insurance to remote Indigenous communities.

The 2016 action was the last straw for Ace, which closed down Combined after admitting that a “limited number” of ARs had engaged in overselling policies, twisting or churning policies, and selling unsuitable policies. The dodges included “tombstoning” – selling policies to people who were already dead – to reap more commissions.

Rod Little, Co-Chair of National Congress – the peak body for Aboriginal and Torres Strait Islander peoples – says the body has been calling for action on predatory funeral insurance salespeople for some time. But he feels the Government has ignored them.

“It is criminal that funeral insurance companies are taking advantage of any vulnerable person, especially Aboriginal peoples,” Mr Little says.

Consumer Action Law Centre Senior Solicitor (insurance) Philippa Heir told insuranceNEWS.com.au unsuitable funeral insurance sales in Aboriginal communities has been a concern “for a long time”.

“Many people who can’t afford to keep up payments have their policies cancelled and lose everything they had ever paid,” she told insuranceNEWS.com.au

So who are these shady insurers? Plenty of mainstream insurers offer funeral insurance, but the operators grilled by the royal commission have been – so far at least – small fry.

Insignificant as these opportunists and shysters may be in the big insurance picture, something needs to be done to stop their abhorrent practices.

Since the royal commission exposed serious corporate misconduct among the big four banks, ASIC has announced it will take a more aggressive enforcement approach to instances of poor advice, including taking action in the Federal Court.

It’s time for the regulator to apply that approach to dodgy funeral insurers as well.

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