The corporate watchdog has urged a crackdown on the under-regulated funeral insurance industry, calling for new legislative powers that would better protect consumers and penalise dodgy insurers.
While corporate watchdog ASIC oversees the regulation of the $315 million industry, its current powers are limited.
To put it simply, ASIC can take action when a funeral insurer is deemed to have “misled” or “deceived” its customers, but is unable to intervene in other situations where consumers could be ripped off.
But in its latest submission to the royal commission, ASIC claimed the current regime falls short of adequately protecting consumers.
ASIC wants tighter funeral insurance regulation
The corporate watchdog is urging for funeral insurance to be re-classified as a “financial product” under the Corporations Act.
These legislative changes would mean that funeral insurers would require an Australian financial services licence.
It would also hold insurers bound by the Corporations Act in ensuring that their services are provided “efficiently, honestly and fairly” and expose companies to penalties if they fail to comply.
Funeral insurance is a policy that provides your loved ones with a lump sum to help pay for funeral costs after you die. It involves ongoing, often ‘stepped’ payments that increase as you age.
ASIC submitted that current laws do not adequately protect consumers from potentially paying more in premiums than they may ever be paid out.
ASIC said that many of these concerns about the industry, which remain true today, were raised in a report back in 2015.
“While we can and do take action regarding misleading conduct, ASIC does not have a product-intervention power,” the report read.
“If conduct is not misleading, ASIC does not have powers to prevent funeral insurance products creating situations where consumers may pay more in insurance premiums over a long period than the benefit that will be available under the policy.
“Or, have to cancel a policy due to unaffordable premiums, despite having paid premiums over a long period (and potentially in excess of the benefit available under the policy).”
The financial regulator APRA also submitted that there would be “merit” in treating funeral insurance consistently under the Corporations Act.
‘Full regulation’ would be a welcome change
Levon Blue, financial literacy and Indigenous education researcher, said the existing financial landscape in Australia enables “predatory” financial practices.
She said “full regulation” of the funeral insurance industry is much needed.
Without proper regulation of funeral insurance, this industry appears to be able to do whatever they like.
“The funeral insurance industry appears to be enabled to exploit individuals because ASIC does not have a product-intervention power,” she said.
“This lack of power appears to have enabled the funeral insurance industry to design products that are not ‘value for money’ – in other words, products where the consumer pays more for the product than they will benefit.
“The steep premium increases over the life of the product appear to almost be designed to become so unaffordable that the consumer is encouraged to cancel the policy before a claim is ever made, thus making this industry very unethical and lucrative.”
Insurance expert Allan Manning told The New Daily he welcomed the move towards greater regulation, citing the heavy advertising during the day when retired pensioners are watching TV.
“I’m all for it. I fear the least educated and most vulnerable are the ones being targeted.”
ACBF denies misconduct allegation
The ACBF has denied the allegation that it “played on the significance of funeral to Aboriginal and Torres Strait Islander people”.
Its submission states: “The suggestion … that children and young people in Indigenous communities ‘have little need’ for funeral insurance fails to appreciate the significantly higher mortality rates for Indigenous infants and children when compared with non-indigenous infants and children.”