Claire Wivell Plater

Ancillary or ‘add-on’ insurance, sold at the point of sale, is a new focus for ASIC in 2014, with all businesses selling general or life insurance, or offering credit as an ancillary offering, likely to be affected according to The Fold Legal (The Fold).

The Fold’s managing director, Claire Wivell Plater said ASIC has already spent considerable time looking at motor, consumer credit and travel insurance and it’s clear that they’re not liking a lot of what they’ve seen.

“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, potential remedies are under consideration in the UK and Australia. “Many insurance products sold at the point of sale offer a convenient means of purchasing coverage which in some cases is not readily available through conventional channels,” Ms Wivell Plater said. “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. Regulators are now using behavioural economics to analyse financial services selling practices – with alarming potential consequences for distributors of ancillary insurance and credit products.”

Insurance advisers should be reviewing the following processes within their business:

• Product design- are products giving value for money?
• Sales processes and collateral – are customers fully aware of what they are buying?
• Remuneration structures – minimise incentives to oversell or missell.
• Sales practices in the field – just because you haven’t asked your staff to, doesn’t mean they aren’t!

“If a sales process includes pre-ticked boxes, bundling of costs into another product, misrepresenting the need for cover, opaque selling practices or remuneration practices that encourage aggressive sales – that is, commissions and volume bonuses – advisers could be singled out for special attention,” Ms Wivell Plater said.

Key indicators of trouble include:

• Narrow coverage, e.g. the policy only insures extreme events that are unlikely to occur
• Coverage of existing rights, e.g. most of the rights to refund, repair or replace provided by the warranty are available under the existing consumer guarantees
• Exclusion of common loss circumstances,  e.g. loan protection insurance which excludes claims arising from the two most common causes of inability to work: bad backs and heart attacks
• Low claims ratios
• High denial rates

Ms Wivell Plater warned that the focus will not just be on existing businesses. “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.”

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AMP’s Director Group Wealth Protection Rob Bergin said AMP Group Insurance builds on the strengths of the AMP and AXA stand-alone group insurance offerings and reflects a combined strong track record in helping businesses prosper and members protect their families.

“We had a look at what was working well in both operating models and are pleased to bring this new offer to the market,” Mr Bergin said.

“Group insurance plays an important role in the battle against underinsurance and AMP Group Insurance ticks all the boxes – competitive and flexible products, accessible underwriting and smooth administration and claims processing.

“AMP is now providing group insurance to more than 1.2 million Australians and in 2011 AMP paid almost $210 million in group insurance claims, giving us the scale and experience to cater for a diverse range of members.”

AMP Group Insurance has a range of enhancements and new product features available to new business, including automatic cover for new employees, under certain conditions. Mr Bergin said AMP Group Insurance offers Total and Permanent Disability cover and Salary Continuance when a non-work related illness prevents an employee from attending work on the their first day of eligibility for cover, usually the first day of work.

“AMP understands injury and illness can happen at any time. Providing cover for illness on day one will give people who are absent from work due to minor illness automatic insurance without the need for underwriting.”

This is in addition to immediate Death and Terminal Illness cover which AMP Group Insurance provides for all causes – work or non-work related health issues.

AMP Group Insurance brings together the superior features from the existing stand-alone AMP and AXA group insurance products, such as a minimum plan size of 10 and relaxing underwriting requirement for larger plans.

Mr Bergin said offering a low minimum plan size means AMP Group Insurance can fulfil the needs of small groups of employees and cater to the unique requirements of a selected group of employees within a bigger business, such as executives for which specific employee benefits need to be provided for retention or attraction purposes.

Underwriting requirements have been removed for the new AMP Group Insurance plans with more than 20 members for benefit increases of more than 30 per cent in 12 months, covering changes of employment such as receiving a salary increase or moving from part-time to full-time work. AMP Group Insurance is open now to new business.

The existing AMP and AXA-branded stand-alone group insurance products are now closed to new business. Mr Bergin added: “AMP will continue to review benefits provided to existing members on an ongoing basis to ensure their group insurance solution remains compelling and relevant. We will continue to work with advisers, brokers and research houses to deliver to the needs of our membership.”

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The Bureau of Meteorology predicts a high risk of tropical cyclones this summer . The long-term average is twelve cyclones each season. There is also the ever-present risk of bushfires.

ASIC’s Senior Executive Leader Financial Literacy, Delia Rickard said, ‘To check your insurance covers you properly, start by checking your policy or contacting your insurer and asking them exactly what events you are covered for and what is excluded, for example damage from flooding.’

‘It’s also very important to check you have enough cover. Some home and contents policies may not cover damage from floods, or may have caps on how much you can claim for flooding and other events’, said Ms Rickard.

‘Make sure you have enough home insurance cover by using online calculators on insurance websites to estimate the total cost of rebuilding your home. Try a couple of calculators to compare because the results can differ. Be sure to shop around for appropriate cover and quotes. Phone potential insurers, and ask lots of questions’, Ms Rickard said.

Home insurance policies are usually either ‘sum-insured’, ‘extended replacement cover’ or ‘total replacement’ policies.

Sum-insured cover is more common and will cover you up to a set amount that you choose. Extended replacement cover policies have a sum-insured amount, but will provide a limited amount of extended cover in the event of a total loss. Total replacement cover covers the costs to rebuild your home to the standard it was prior to the event, thus significantly reducing the risk of being underinsured.

There are a number of variations to these basic models, so read the fine print and ask as many questions as possible when comparing insurers. The key is to be sure your policy covers all the costs of rebuilding your home.

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