ASIC Concerned About Direct Sales Advertising
The Australian Securities and Investments Commission (ASIC) is keeping a watchful eye on the insurance industry, according to a recent article in The Sydney Morning Herald, and the direct sales channel has been a particular focus of the regulator’s attention. According to The Herald’s Lesley Parker, that attention has been driven by the growth in direct sales and the accompanying growth in the quantity of insurance-related television advertising.
That scrutiny was foreshadowed by Ian Laughlin, a member of the executive group of the Australian Prudential Regulation Authority (APRA), in a speech delivered at a meeting of the Financial Services Accountants Association on May 21. Laughlin remarked on the growth of direct sales, calling the channel “a significant proportion of the retail market.”
“We are concerned that the quality of the products and of the business being written may be poor in some cases,” Laughlin said, pointing to expensive products and high rates of policy discontinuance as problems. Those problems, according to Laughlin, raise issues of governance and reputational risk. He also noted “issues with market conduct,” without further specifying, and indicated that APRA had been discussing those issues with ASIC.
According to The Herald, ASIC Commissioner Peter Kell sees nothing inherently problematic about direct insurance sales. However, Kell is concerned about whether consumers are receiving accurate and complete information from insurance advertising, especially if the consumer is not receiving the independent counsel of a financial adviser.
Kell is concerned that the advertisers’ emphasis on price comes at the expense of providing consumers with an adequate explanation of policy features. “In insurance, there can be critical differences in the scope of cover or items excluded from a policy,” Kell said, and those differences may not be clear when advertising focuses on comparisons in price.
Price-based comparisons may not reflect the true value of a policy for a given consumer. “Just because an insurance product is cheaper doesn't mean it's the right product for you,” Kell added. ''As with all comparison advertising, ASIC would be concerned if the comparisons were being made between products that weren't similar.”
ASIC’s interest in direct sales may have been inspired by its recent study of funeral insurance. That study found that consumers were often inadequately informed about policy costs and benefits, especially given the public's confusion about distinctions between prepaid funerals, funeral insurance and funeral bonds, all of which have been marketed simply as “funeral plans.”
According to Kell, over the past two years ASIC has caused advertisers to withdraw or revise approximately 120 ads because they were unclear or inaccurate.