SYDNEY (Reuters) – Australian insurers use high-pressure tactics to prevent customers from cancelling their policies and even hang up on them when they attempt to do so, a powerful public inquiry into the financial sector heard on Wednesday.
The inquiry, which can recommend criminal prosecutions and tougher regulations, also heard that insurers had knowingly overcharged customers, interrogated policy-holders over their finances and offered incentives to staff to prevent cancellations.
The scrutiny of insurance company practices, focusing this week on Freedom Insurance Group and Clearview Wealth, sparked a share sell-down of those companies as the threat of increased regulation looms.
Shares in Freedom were down 17 percent in early afternoon trading, while Clearview was down 5 percent.
The country’s biggest insurers, including QBE Insurance Group, AMP and Suncorp Group, were trading up to 2 percent lower, while the broader market was flat.
The Royal Commission, which has already scrutinized banking, lending and pension sectors earlier in the year, is conducting a fortnight of hearings unpicking the business practices of the insurance sector.
It heard that 85 per cent of Freedom customers who called to cancel policies ended up keeping the same or an amended policy.
Under questioning, Freedom Chief Operating Officer Craig Orton told the inquiry the retention rate was “too strong” and that he was aware of representatives “not taking no for an answer”.
“It is too difficult to cancel in some circumstances,” said Orton, who conceded some customers had only signed up to take advantage of a period of free premiums.
“That’s something that I won’t allow to happen in the future.”
A lawyer assisting the inquiry, Rowena Orr, said some customers had complained that Freedom staff had “just hung up” when they attempted to cancel a policy. Orton, however, said he was not aware of that practice.
It heard on Monday that Clearview had reported more than 300,000 breaches of “anti-hawking” laws to the regulator.
PAY INCENTIVES
The Royal Commission is scheduled to hold a final set of hearings in November and provide a report to the federal government in February, which could include proposed regulatory changes to how insurers contact potential customers.
The sector is also bracing for changes to incentives paid to employees and third-parties for recommending their products, after the issue was raised repeatedly throughout hearings this year.
Orr said on Wednesday that staff handling claims at Suncorp were rewarded for quickly “resolving” claims, which included a high number of rejections, because that freed up money for the company.
Insurance companies are required to hold capital against claims that remain open.
“We see that there were cash prizes for individuals and teams with the highest resolution rates and reserve release rates,” Orr said.
Reporting by Jonathan Barrett and Paulina Duran in SYDNEY; Editing by Stephen Coates
Source : Reuters
