An ASIC review into bad advice in the life insurance industry confirms what our clients have been telling us for years, many insurance advisers don’t properly explain their advice to their clients.
ASIC’s review of a sample of advice files found more than a third of customers received advice so bad it was unlawful. ASIC said that its results indicated that many advisers giving post-FOFA advice may have prioritised their own interests in earning commission income ahead of the interests of the client in getting good quality advice.
In my years of acting for clients who have received bad advice from their insurer, I’ve found that many advisers don’t properly explain the catches hidden in the fine print of some of the policies they are selling.
Many people don’t realise that switching insurers can increase the risk of losing insurance cover entirely, or of having a policy cancelled later. Switching insurers increases the risk that a claim will be rejected for a pre-existing condition, and also increases the risk that a policy will be cancelled for non-disclosure of some aspect of a customer’s medical history.
The ASIC report also found advisors gave ‘too many generic warnings that were insufficient to engage the client in understanding’ the risks of switching insurers.
In some instances, advisers sell unsuitable insurance policies motivated by the commissions they get paid. This is a huge problem in the industry and in the end, it is the insurance consumer who suffers.
Life insurance customers can protect themselves by asking their insurance advisors some key questions:-
- How much will you be paid if I sign up to this policy?
- Is there a comparable, cheaper policy? If so, how much would you be paid if I bought that policy, and why are you not recommending it?
- Can you give me a quote for the same amount of cover with at least three different insurers?
- Why are you recommending this policy, rather than another insurer’s policy?
- What do I have to prove to be paid the benefit?
- What are the exclusions?
- What are the risks of me signing up to this policy?
- Will my premiums go up over time? How much by?
Insurance advisors have a duty of care to their customers, and customers who are given bad advice may have an action against their advisor, or their insurer.