The federal government will boost corporate watchdog ASIC’s powers to better protect consumers from being ripped off by “predatory products”, enabling it to crack down on dishonest funeral insurers.
The Turnbull government proposed draft legislation on Friday morning that would broaden the corporate watchdog’s jurisdiction in regulating financially potentially harmful products such as funeral insurance.
This comes days after the financial services royal commission published ASIC’s submission, claiming that the current laws fall short of adequately protecting consumers when it comes to funeral insurance.
It also follows an investigation by The New Daily into the funeral insurance industry which revealed premiums are often much higher than any eventual pay-out benefit to consumers.
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.
In its submission, ASIC argued that funeral insurance should be re-classified as a “financial product” under the Corporations Act.
This would mean that funeral insurers would require an Australian financial services licence and be bound by the Corporations Act in ensuring that their services are provided “efficiently, honestly and fairly”.
This would expose companies to penalties should they fail to comply.
The government’s proposed legislation grants ASIC with this ‘product intervention power’.
Katherine Temple, senior policy officer at Consumer Action Law Centre, said these new powers would enable ASIC to step in before dangerous financial products cause harm to Australians.
She said this could include ‘buy-now pay later’ schemes using short-term credit legal loopholes, junk insurance including extended warranties, and funeral insurance.
“ASIC would be able to impose restrictions or ban potentially harmful products, like funeral expenses insurance, for up to 18 months,” she told The New Daily.
“These tools are essential to ensure ASIC can regulate proactively, and respond quickly to risky products that enter the market.”
The royal commission recently exposed problems with funeral expenses insurance targeting and allegedly exploiting Aboriginal and Torres Strait Islander people.
Consumer Action chief Gerard Brody said currently, ASIC can only act once consumers have been hurt by “exploitative businesses”.
“Too many dodgy financial products have been able to spread like a virus,” he said.
“These powers will allow ASIC to act much earlier by stopping dodgy financial products before they become an epidemic.”