ASIC has proposed to ban unsolicited telephone sales of life insurance (including funeral insurance) and Consumer Credit Insurance (CCI) when sold with general or no advice. This proposed ban will even extend to financial advisers who make unsolicited telephone sales of direct life insurance where general or no advice is given.
As explained in its Consultation Paper 317 released on Thursday 19 July, the expression “life insurance” includes all ‘life risk insurance products’ as defined in sections 761A and 764A(1)(e) of the Corporations Act 2001. Specifically, it includes life insurance products including term life insurance, accidental death insurance, trauma, total and permanent disability insurance (TPD), funeral insurance and income protection insurance.
Direct telephone sales of these products are currently permitted if certain requirements are met as outlined in section 992A(3)(a)–(e) of the Corporations Act. Regulatory Guide 38 explains the scope and limits of the current exemptions.
In February 2019, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) recommended that the hawking of insurance and superannuation products should be prohibited and a legislated definition of ‘unsolicited’ should be introduced. The Government responded to this recommendation by committing to strengthen and clarify the prohibition on hawking in s992A, including defining ‘unsolicited’.
Rather than wait until the legislation is changed, ASIC intends to use modification power in s992B(1)(c) of the Corporations Act to implement this ban:
C1: We intend to use our modification power in relation to the hawking provisions in the Corporations Act to prohibit unsolicited telephone sales of life insurance (including funeral insurance) and CCI, when only general advice or no advice is given at the point of sale.
By using its modification powers now, ASIC’s proposed ban will provide interim protections to consumers ahead of broader law reform by the Government.
ASIC could have intervened by using its new “product intervention powers”, but has formed the view that use of its modification power is more appropriate.
ASIC’s rationale for the proposed changes is:
Imposing a ban on unsolicited telephone sales of direct life insurance and CCI would address the concerns raised in our reviews that current industry practices can result in consumers paying for life insurance and CCI policies that are not suitable for their needs. Such a ban would promote informed decision making and reduce consumer harms.
We consider that the proposed ban appropriately:
(a) ensures that consumers have an opportunity to consider their needs and the products available before taking out an insurance policy; and
(b) reduces the likelihood that consumers will be sold insurance products that are not necessary or suitable. (CP317 59-60)
ASIC is also seeking views on whether the prohibition on unsolicited telephone contact should be extended to other financial products provisions, such as other insurance and superannuation products, currently captured by the hawking provisions.
The timelines proposed for the Consultation process are:
| Stage 1 | 18 July 2019 | ASIC consultation paper released |
| Stage 2 | 29 August 2019 | Comments due on the consultation paper Review submissions and make policy decision |
| Stage 3 | December 2019 | Consider changes to existing regulatory guidance Consult on possible draft instrument |
| Stage 4 | March 2020 | Finalise instrument |
Things to watch out for:
The scope of the changes will to a large extent be determined by how ASIC updates Regulatory Guide 38 and in particular how ASIC defines the expression “unsolicited”. This will be especially relevant in the context of cross selling and requests by consumers that they be contacted to discuss provision of life insurance products.
One thing is certain – these changes if implemented will radically change how risk based life and other insurance products are sold in Australia.
