Life insurers must take the recent action by the corporate regulator against the selling of poor risk products “seriously” and address instances of “poor customer outcomes”, otherwise they could incur heavy penalties, KPMG Australia has said.
According to Neil Kerr, KPMG's associate director, insurers could be hit with “substantial” financial penalties following action by ASIC into the sale of poor add-on insurance products through car dealerships.
“Australian insurers must take this issue seriously and ensure that they have the necessary procedures in place to identify potential instances of poor customer outcomes,” Mr Kerr said.
In fact, Mr Kerr explained, insurers can learn from cases in the UK where large-scale product failures have had a significant effects on customers.
“We know from experience in the UK that financial and customer impact from such product failures can be large. Firms in the UK have had to provision £24 billion [approximately $46.12 billion] to remediate for the mis-selling of payment protection and add-on products of this nature,” he said.
“Whilst the financial scale of the issues identified by ASIC and the product structures differ from the UK, there are also clear similarities. Many of the issues identified from our UK experience could provide useful learnings.”
Mr Kerr said the issues that were identified included low customer value, excessive profit taking, high levels of customer complaints and inappropriate sales practices.
At present, the corporate regulator does not have the necessary powers to intervene in these poor products and the operations of insurers.
“ASIC does not yet have the additional powers that the Murray Inquiry recommended be enshrined in legislation,” Mr Kerr said.
“When granted, these will allow ASIC considerably greater intervention on products and oversight of life insurers – but they already appear ready to press ahead and take action where they see the potential for poor customer outcomes,” he added.