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The fine line between help and advice

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The Insurance Council of Australia’s (ICA) annual Regulatory Update seminar is unmissable for anyone wanting a pointer to the industry’s emerging issues, and this year’s event suggests insurers face pressure to give consumers more personalised advice and take greater responsibility for who buys their products.

The shadow of the Financial System Inquiry (FSI) hung over the meeting, with its recommendation that product issuers and distributors be more accountable for selling products that meet consumers’ needs and its call for the Australian Securities and Investments Commission (ASIC) to have tougher intervention powers.

FSI panel member and former AMP CEO Craig Dunn said insurers can provide greater assistance, to help some consumers make more informed decisions.

ASIC Deputy Chairman Peter Kell told delegates consumers need more help to buy the right cover, and insurers are being overly cautious in the information they provide.

Insurers argue the laws on personal advice prevent their staff from giving buyers too much information.

But Mr Kell says home insurance buyers in particular need assistance, and the “no advice or factual advice” model is not helping them.

ASIC analysis of phone conversations between consumers and insurers shows that even when insurers have online tools such as contents calculators, call centre staff may not refer the customer to the website.

Mr Kell says the industry needs to be better at helping consumers obtain the information they need to buy adequate cover.

But at what point does assisting someone become giving personal advice?

The dilemma was highlighted by National Insurance Brokers Association CEO Dallas Booth, who asked Mr Kell: “Where does the general advice concept stop and the personal advice concept begin?”

“I am prepared to spend an hour answering this,” replied Mr Kell, adding he cannot provide a simple, neat answer.

Yet that is what call centre and other insurer and broker staff need.

ASIC is on something of a high, having secured a record civil penalty against payday lender The Cash Store and its financier for breaches of the Credit Act and for insurance sold to consumers who would never be able to claim on it.

Allianz was one of the insurers involved, and last week it agreed to refund $400,000 in “useless” payday premiums sold by The Cash Store.

The case has raised the issue of “fit for purpose” insurance, which will actually provide cover.

The payday lender sold credit insurance to unemployed people who would not be able to claim for lost income.

Mr Kell told delegates: “Clearly some products can be worse than others, but I commend this judgement to you as an indication of the matters ASIC will consider in deciding whether to take court action in relation to such policies.”

The regulator has begun a review of add-on insurance sold through car dealers. Mr Kell says the cover’s value to customers is “questionable in some circumstances”.

The FSI draft report says insurers can provide better guidance on home building replacement value and should ensure tools and calculators are updated as building codes and costs change.

Mr Kell reminded delegates the report recommends that if the industry does not raise its game, the Government should consider intervening.

Speakers at the regulatory update agreed voluminous disclosure is not working, with ICA President Any Cornish saying: “We would all like to see the end of the 80-page product disclosure statement.”

He says most insurers find their staff tiptoeing to stay on the right side of the regulations around giving advice.

Consumer Action Law Centre Senior Policy Officer David Leermakers says while insurers recognise consumers do not read long disclosure statements, the companies often do not support comparison websites or key facts statements as other sources of information.

Consumer groups have argued a version of the responsible lending obligation should be applied to insurers.

Mr Leermakers told that if insurance products are so complex consumers cannot understand them or find it hard to make an informed decision, perhaps they need to be improved.

Many of the speakers, including Assistant Treasurer Josh Frydenberg, want to work with the industry on solutions to insurance issues.

The Federal Government is consulting on the draft FSI report until the end of this month, and the message from the ICA seminar is that it is in the industry’s interests to solve the difficulties consumers have with insurance.

The north Queensland response – with insurers dragged onto a comparison site and the threat of unauthorised foreign insurers failing customers – shows that where the industry is seen to fail, the Government will step in.

And the outcome may not work for insurers or even the very consumers the Government is trying to assist.